U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
TATUM PETROLEUM CORPORATION
---------------------------------------------
(Name of small business issuer in its charter)
Delaware 33-0117736
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
667-E Lakeview Plaza Boulevard
Worthington, OH 43085
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (614) 888-3637
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Securities to be registered under Section 12(b) of the Act: None
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Securities registered under Section 12(g) of the Act: Common Stock, $.01
par value
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
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GENERAL
Tatum Petroleum Corporation, (the "Registrant" or "Company") was
incorporated under the laws of Delaware on July 10, 1985 and became
actively engaged in the exploration for and acquisition, development and
production of oil and gas upon the acquisition of its predecessor entities,
Tatum Petroleum Corporation, a California corporation ("Tatum of
California") incorporated November 28, 1984, and Power Ventures, Inc., a
Colorado corporation (and its wholly-owned subsidiary, Midnight Oil
Company, a Colorado corporation) on June 30, 1986. The Company
concentrates its activities in areas in which it has accumulated detailed
geographical knowledge and developed management experience. The
Registrant's oil and gas operations are currently located in California and
Ohio in which the Company owns varying interests in 78 producing wells with
oil constituting 25% of current production and natural gas constituting 75%
of current production (assuming 10 MCF of gas produced equals one barrel of
oil production).
The Registrant investigates potential opportunities to develop, drill
and/or participate in the development of new oil and gas properties
throughout the Midwest region of the United States. Its current activities
on a yearly basis include identifying and drilling from 15 to 25 oil and
gas properties on its own behalf or with partners on an equal promoted
basis. It is likely that any significant expenditures required of the
Registrant in connection with the future expansion of its oil and gas
activities will require additional funding from outside sources in the form
of debt or equity. There can be no assurance such funding is or will be
available to the Registrant for this purpose.
From 1986 to 1991, the Registrant's class of common stock was
registered under Section 12(g) of the Securities Exchange Act of 1934, as
amended (No. 0-14788). In 1991, the Registrant deregistered its securities
under the Securities Exchange Act of 1934 in an effort to lower general
overhead expenses. The Board of Directors has elected to re-register its
shares under the Securities Exchange Act of 1924 in an effort to create a
trading market for its shares and provide a possible source for future
funding activities if a market should develop. No trading market currently
exists for the Registrant's common stock.
The Registrant's corporate offices are located at 667-E Lakeview Plaza
Boulevard, Worthington, OH 43085. Its telephone number at that address is
(614) 888-3637.
BUSINESS STRATEGY
The Company's growth strategy is to increase its annualized cash flow
and oil and gas reserves by drilling and completing, on its own behalf and
with others, from 15 to 25 oil and gas prospects per year. The Company
will develop these prospects each year with a view to taking advantage of
industry advances in seismic and drilling technologies and management's
experience primarily in Ohio. Of the projected new prospects, between two
(2) and five (5) each year will be intended as higher potential, higher
risk prospects. As indicated above,
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the Company intends to market its prospects on a basis that will allow the
Company to be able to control its risks on each of these prospects.
OPERATIONS
As of September 30, 1996, the Company was serving as operator for all
of the Company's producing wells and receives a management fee for each
well from the working interest owners. The Company believes that, as
operator, it is in a better position to control costs, safety and
timeliness of work as well as other critical factors affecting the
economics of a well or property. The Company presently operates wells
which represent virtually 100% of the Company's proved reserves.
CUSTOMERS AND MARKETS
Three purchasers each represent in excess of 10% of the Registrant's
total oil and gas revenue for the fiscal years ended March 31, 1996 and
1995. These purchasers are Quaker State, Energy Marketing Services, Inc.
and East Ohio Gas Company. Prices of Registrant's gas are generally set
unilaterally by the individual buyers based upon prevailing market prices
paid to oil and gas producers in that area.
Oil produced from the Registrant's wells are sold and gathered by
Quaker State. The Registrant transports a portion of its gas production
with Sol Ltd., an affiliated entity, over a gas gathering system and a
pipeline owned by that entity that connects to the East Ohio Gas Co. and
Columbia Gas Transmission Corp. pipelines. During the fiscal years ended
March 31, 1996 and 1995 and for the six months ended September 30, 1996 and
1995, the Registrant paid approximately $226,000, $159,000, $111,000, and
$108,000 in gathering fees and $56,000, $34,000, $27,000, and $28,000,
respectively, in compression fees for the Company's share of the gas
transported over these lines to Sol Ltd.
The Registrant's business is not seasonal in nature, except to the
extent that weather conditions at certain times of the year may affect the
Registrant's access to its oil and gas properties and its ability to drill
oil and gas wells. The impact of inflation on the Company's activities is
minimal. While gas prices have historically fluctuated between winter and
summer seasons, changes in the market during the last few years have made
such fluctuations unpredictable. For instance, because local gas utilities
around the country need to refill their gas storage facilities in the
summer, prices may be higher during spring or summer months than during
subsequent winter months when temperatures are warmer than normal.
GAS CONTRACTS
The Registrant sells substantially all of its natural gas pursuant to
four (4) separate gas purchase agreements with Energy Marketing Services,
Inc. and East Ohio Gas Company, both Ohio corporations. The agreement with
Energy Marketing Services, Inc. accounts for approximately 38% of the
Company's production sales with prices based on the spot market price for
gas. This agreement expires in January 1998. The Company's remaining
natural gas is sold to East Ohio Gas Company pursuant to three (3) separate
agreements at prices ranging from $2.25 to $2.70 per MCF. The first two
(2) agreements account for 56% of the Company's
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natural gas sales and expire in April 1997. The third agreement with East
Ohio Gas Company accounts for 6% of the Company's gas sales and is based on
a spot market price. This third agreement expires in May 1997.
COMPETITION
The Company competes with numerous other companies and individuals,
including many that have significantly greater resources, in virtually all
facets of its business. Such competitors may be able to pay more for
desirable leases and to evaluate, bid for and purchase a greater number of
properties that the financial or personnel resources of the Company permit.
The ability of the Company to increase reserves in the future will be
dependent on its ability to select and acquire suitable producing
properties and prospects for future exploration and development. The
availability of a market for oil and natural gas production depends upon
numerous factors beyond the control of producers, including but not limited
to the availability of other domestic or imported production, the locations
and capacity of pipelines, and the effect of federal and state regulation
on such production. Domestic oil and natural gas must compete with
imported oil and natural gas, coal, atomic energy, hydroelectric power and
other forms of energy. The Company does not hold a significant competitive
position in the oil and gas industry.
GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY
GENERAL
The Company's exploration and marketing operations are regulated
extensively at the federal, state and local levels. Gas and oil
exploration, development and production activities are subject to various
laws and regulations governing a wide variety of matters. For example,
hydrocarbon-producing states have statutes or regulations addressing
conservation practices and the protection of correlative rights, and such
regulations may affect the Company's operations and limit the quantity of
hydrocarbons the Company may produce and sell. Other regulated matters
include marketing, pricing, transportation, and valuation of royalty
payments.
At the U.S. federal level, the Federal Energy Regulatory Commission
("FERC") regulates interstate transportation of natural gas under the
Natural Gas Act and regulates the maximum selling prices of certain
categories of gas sold in "first sales" in interstate and intrastate
commerce under the Natural Gas Policy Act. Effective January 1, 1993, the
Natural Gas Wellhead Decontrol Act deregulated natural gas prices for all
"first sales" of natural gas, which includes sales by the Company of its
own production. As a result, all sales of the Company's natural gas
produced in the U.S. may be sold at market prices, unless otherwise
committed by contract.
The Company's gas sales are affected by regulation of intrastate and
interstate gas transportation. In an attempt to promote competition, the
FERC has issued a series of orders which have altered significantly the
marketing and transportation of natural gas. The Company believes that
these changes have generally improved the Company's access to
transportation and have enhanced the marketability of its natural gas
production. To date, the Company has not experienced any material adverse
effect on gas marketing as a result of these FERC orders; however, the
Company cannot predict what new regulations may be adopted by the FERC and
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other regulatory authorities, or what effect subsequent regulations may
have on its future gas marketing.
The Company also is subject to laws and regulations concerning
occupational safety and health. It is not anticipated that the Company
will be required in the near future to expend amounts that are material in
the aggregate to the Company's overall operations by reason of occupational
safety and health laws and regulations, but inasmuch as such laws and
regulations are frequently changed, the Company is unable to predict the
ultimate cost of compliance.
ENVIRONMENTAL REGULATIONS
Various federal, state and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, may affect the operations and costs of the
Company. It is not anticipated that the Company will be required in the
near future to expend amounts that are material in relation to its total
capital expenditure program by reason of environmental laws and
regulations. However, inasmuch as such laws and regulations are frequently
changed, the Company is unable to predict the ultimate cost of compliance.
STATE REGULATION OF OIL AND GAS PRODUCTION
State statutes and regulations require permits for drilling
operations, drilling bonds and reports concerning operations. Most states
in which the Company owns and operates properties have statutes, rules or
regulations governing conservation matters, including the unitization or
pooling of oil and gas properties, establishing of maximum rates of
production from oil and gas wells and the spacing of such wells. Many
states also restrict production to the market demand for oil and gas. Such
statutes and regulations may limit the rate at which oil and gas could
otherwise be produced from the Company's properties. Some states have
enacted statutes prescribing ceiling prices for gas sold within their
state. The Company's Ohio production is not currently subject to price
regulation. However, the Company is unable to predict whether production
rate limitations or price regulations may be imposed in the future.
TITLE TO PROPERTIES
As is customary in the oil and gas industry, only a preliminary title
examination is conducted at the time properties believed to be suitable for
drilling operations are acquired by the Company. Prior to the commencement
of drilling operations, a thorough title examination of the drill site
tract is conducted by independent attorneys. Once production from a given
well is established, the Company prepares a division order title report
indicating the proper parties and percentages for payment of production
proceeds, including royalties. The Company believes that titles to its
leasehold properties are good and defensible in accordance with standards
generally acceptable in the oil and gas industry.
OFFICE AND OPERATIONS FACILITIES
The Company's corporate offices are located in Worthington, Ohio which
it leases pursuant to a lease which expires in May 1998. Minimum future
lease payments under the non-
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cancelable lease for the years ending March 31, 1997, 1998 and 1999 are
$18,000, $18,000 and $3,000, respectively, for a total of $39,000. Total
rental expense charged to operations was $16,400 and $15,000 for the years
ended 1996 and 1995, respectively.
The Company believes its office space is sufficient for the
foreseeable future.
LEGAL PROCEEDINGS
The Company is not engaged in any material pending legal proceedings
to which the Company or its subsidiary is a party or to which any of its
property is subject except as set forth in Part II of this Registration
Statement.
EMPLOYEES
At September 30, 1996, the Company and its subsidiaries employed 5
full time and 1 part time persons. Three (3) of the Registrant's employees
are responsible for field operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OR OPERATIONS.
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THIS REGISTRATION STATEMENT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933. SUCH FORWARD-
LOOKING STATEMENTS MAY BE FOUND IN THIS SECTION AND UNDER "DESCRIPTION OF
BUSINESS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OR OPERATIONS"
AND "PROPERTIES." ACTUAL EVENTS OR RESULTS COULD DIFFER MATERIALLY FROM
THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS
FACTORS.
SIX MONTH PERIOD ENDED SEPTEMBER 30, 1996 VS. SEPTEMBER 30, 1995
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RESULTS OF OPERATIONS
The Company had net income for the six month period ended September
30, 1996 totaling $168,000, compared to $232,000 at September 30, 1995.
This decrease of 27.5% in net income was primarily a result of increased
exploration costs along with a reduction of income from sale of working
interest.
REVENUES
Oil and gas sales for the six month period ended September 30, 1996
totaled $1,425,000 compared to approximated revenues of $1,425,000 for the
six months ended September 30, 1995. Oil production decreased from 16,625
barrels to 15,700 barrels for a net decrease of 925 barrels or 5.6%. Gas
production increased from 508,297 MCFs to 526,204 MCFs for a net increase
of 17,907 MCFs or 3.5%. These changes in revenue and fluctuations in
production have resulted in virtually no difference in total revenue for
the two periods presented.
Drilling arrangement income decreased from $76,000 at September 30,
1995, to $15,000 at September 30, 1996, a reduction of 80%. This decrease
is a result of the Company retaining more working interest in the new wells
being drilled.
Management fee income increased from $47,000 at September 30, 1995, to
$70,000 at September 30, 1996, for a 48.9% increase or $23,000. The
increase in revenue is a result of the Company managing additional wells
that were brought into production during the current period.
COSTS AND EXPENSES
Oil and gas production costs for the six months ended September 20,
1996 totaled $253,000 for a 12.4% (or $28,000) increase over the six month
period ended September 30, 1995 costs of $225,000. The increased costs
were primarily a result of hiring an additional employee in the field along
with salary increases.
General and administrative expenses totaled $305,000 at September 30,
1996 as compared to $280,000 at September 30, 1995 for a total increase of
8.9%. This increase was due to additional legal fees incurred in
connection with the Company's lawsuit with Columbia Gas along with salary
increases.
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Depreciation, depletion and amortization costs for the current six
month period totaled $218,000 for an increase of $69,000 (or 46.3%) over
the six month period ended September 30, 1995 costs of $149,000. This
increase is consistent with an increase in the depreciable assets owned by
the Company, as well as adjustments to depletion rates based on year end
reserve quantities.
Exploration costs and dry hole costs increased a total of 6.2% from
$319,000 at September 30, 1995 to $339,000 at September 30, 1996. The
Company's approach to exploration has not changed significantly from the
prior period.
OTHER INCOME (LOSS)
Other income (loss) for the six months ended September 30, 1996, was
a loss of $35,000, a decrease of 305% (or $52,000) from the six months
ended September 30, 1995 revenues of $17,000. This decrease was due to the
loss realized during the current period on the plugging of one well which
was not fully depreciated.
LIQUIDITY AND CAPITAL RESOURCES
During the six month period ended September 30, 1996, the Company
experienced an increase in working capital deficiency from $(411,000) at
March 31, 1996 to $(478,000) in the current period. This increased
deficiency of $67,000 was due to the decrease in accounts receivable,
resulting from lower gas prices which averaged 44% less than the March 1996
prices. Cash as of September 30, 1996 was $241,000, a $175,000 decrease
from March 31, 1996. This was due to increased drilling activity and the
purchase of inventory pipe to take advantage of low prices. Cash provided
by operations was $413,000 at September 30, 1996 which is in line with
$414,000 at September 30, 1995. However, management anticipates increased
natural gas prices during the second half of fiscal year 1997 to bring the
annualized September 1996 numbers closer in line with the March 31, 1996
cash provided by operations numbers.
The Company used it's line-of-credit along with advances from industry
investors to facilitate the drilling of 13 wells during the six months
ended September 30, 1996. Four of these wells were dry holes. Of the nine
commercial wells, the Company retained an average of 49.3% working
interest.
The Company anticipates continuing the sale of working interest to
industry related investors and bank borrowings to facilitate its working
capital needs and its drilling activities for the remainder of the fiscal
year.
FISCAL YEAR ENDED MARCH 31, 1996 VS. 1995
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RESULTS OF OPERATIONS
The Company had net income for the year ended March 31, 1996 totaling
$476,000 or $.05 per share of common stock, compared to $145,000 or $.01
per share for the prior year.
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The increased net income during the current year was primarily a result of
increased drilling success and higher gas prices.
REVENUES
Oil and gas sales for the current fiscal year totaled $3,083,000
compared to revenues of $2,270,000 for the prior year for an increase of
$813,000 or 35.8%. Oil production decreased from 36,227 barrels to 34,615
barrels for a net loss of 1,612 barrels or 4.5%. Gas production for the
current year totaled 1,039,039 MCFs compared to 673,151 MCFs for the prior
year, a net gain of 364,888 MCFs or 54.2%. The gas production increase was
primarily a result of new wells drilled by the company. In addition, one
exceptional well, drilled close to the prior year end, accounted for 32% of
this year's gas production, compared to 8% of the prior year production.
It should be noted, however, that this exceptional well is expected to have
a short production life. One other reason for the increase in revenue is
due to the unusually high gas prices at year end.
Drilling arrangement income for the current year totaled $95,000, a
decrease of 47.2% (or $85,000) from prior year revenues of $180,000. This
decrease was due to the decrease of outside investors participating in the
current year drilling programs.
Management fee income increased from $107,000 to $114,000, during the
current fiscal year, for a 6.5% increase or $7,000. The increase in
revenue is a result of the Company managing additional wells that were
brought into production during the current fiscal year.
COSTS AND EXPENSES
Oil and gas production costs for the current year totaled $536,000 for
a 4% (or $23,000) decrease over prior year costs of $559,000. The
decreased costs were primarily a result of plugging under performing wells.
In addition, the majority of new wells drilled during the current year were
gas producing wells which require less maintenance than oil producing
wells.
General and administrative expenses totaled $653,000 for the current
year as compared to $554,000 for the prior year for a total increase of
18%. Nine percent of this increase was due to additional legal fees
incurred with regard to the Company's lawsuit with Columbia Gas and
additional geology costs associated with the Columbia Gas bankruptcy claim.
Four percent was due to salary increases and the remaining 5% was a
combination of increased accounting fees, taxes and other expenses.
Depreciation, depletion and amortization costs for the current year
totaled $495,000 for an increase of $92,000 (or 22.8%) over prior year
costs of $403,000. This increase was due to an increase in depreciable
assets owned by the Company, offset by revisions of reserve quantity
estimates, primarily due to the increase in the price of gas at year end.
Exploration costs and dry hole costs decreased a total of 1.4% from
$908,000 in the prior year to $895,000 during the current year. The
Company's approach to exploration has not changed significantly from the
prior year.
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OTHER INCOME
Other income for the current year totaled $63,000, an increase of 425%
(or $51,000) from prior year revenues of $12,000. This increase was due to
the gain realized during the current year on the sale of two fully
depreciated assets, one well and one truck, and the sale of equipment
inventory.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended March 31, 1996, the Company experienced
a decrease in working capital from a deficiency of $(323,000) in the prior
year to $(411,000) in the current year. This decrease of $88,000 was due
in general to the increase in accounts payable at March 31, 1996, resulting
from increased drilling activity at year end. Cash as of March 31, 1996
was $416,000, a $91,000 increase over the prior year of $325,000. This was
primarily due to an increase in cash provided by operations, which
increased from $780,000 for the year ended March 31, 1995 to $1,284,000 for
the year ended March 31, 1996. This was due primarily to the increased
drilling success in the current year and higher gas prices.
The Company used it's line-of-credit along with outside investors to
facilitate the drilling of 18 wells during fiscal year 1996. Four of these
wells were dry holes. Of the fourteen commercial wells, the Company
retained an average of 60.36% working interest.
The Company anticipates continuing the sale of working interests in
its future exploration and bank borrowings to facilitate its working
capital needs and its drilling activities for the next fiscal year.
FISCAL YEAR ENDED MARCH 31, 1995 VS. 1994
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RESULTS OF OPERATIONS
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The Company had net income for the year ended March 31, 1995 totaling
$145,000 or $.01 per share of common stock, compared to net income of
$585,000 or $.06 per share for the prior year. The decreased gain during
the current year was primarily a result of increased seismic costs and the
drilling of numerous dry holes.
REVENUES
Oil and gas sales for the current fiscal year totaled $2,270,000
compared to revenues of $1,899,200 for the prior fiscal year for an
increase of $370,800 or 19.5%. Oil production increased from 27,973
barrels to 36,227 barrels for a net increase of 8,254 barrels or 29.5%.
Gas production for the current year totaled 673,151 MCFs compared to
497,495 MCFs for the prior year, a net increase of 175,656 MCFs or 35.3%.
These increases in production were primarily a result of new wells drilled
by the Company.
Drilling arrangement income for the current year totaled $180,000, an
increase of 11.1% (or $18,000) from prior year revenues of $162,000. This
increase was due to the increased number of drilling programs undertaken by
the Company during the current fiscal year.
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Management fee income increased from $83,500 to $107,000, during the
current fiscal year, for a 28.1% increase or $23,500. The increase in
revenue is a result of the Company managing additional wells that were
brought into production during the current fiscal year and an increase in
the monthly management fees charged to other working interest owners.
COSTS AND EXPENSES
Oil and gas production costs for the current year totaled $559,000 for
a 0.6% (or $3,900) decrease over prior year costs of $562,900. The Company
re-evaluated profitability of it's existing wells and shut-in or plugged
and abandoned several wells which were not operating as profitably as
expected. This practice resulted in costs remaining virtually the same in
spite of additional new wells coming on line.
General and administrative expenses totaled $554,000 for the current
year as compared to $564,000 for the prior year for a total decrease of
1.8%. These costs remained fairly consistent as the Company made no
meaningful changes in day to day operations.
Depreciation, depletion and amortization costs for the current year
totaled $403,000 for an increase of $49,700 (or 14.1%) over prior year
costs of $353,300. This increase was due to an increase in depreciable
assets owned by the Company, in addition to recalculations of estimated
reserve quantities.
Exploration and dry hole costs increased a total of 636.4% from
$123,300 in the prior year to $908,000 during the current year. These
costs increased primarily due to the Company purchasing leases in two new
areas of Ohio and increasing its seismic study costs. In addition, a total
of nine dry holes were drilled during the current year, five of which were
drilled in these two areas in the Company's efforts to evaluate the new
leases.
OTHER INCOME
Other income for the current year totaled $12,000, a decrease of 72.5%
(or $31,600) from the prior year of $43,600. This decrease was due to the
gain realized during the prior year on equipment sold from inventory and
the sale of two fully depreciated trucks.
LIQUIDITY AND CAPITAL RESOURCES
During the fiscal year ended March 31, 1995, the Company experienced
a decrease in working capital from $321,200 in the prior year to $(322,800)
in the current year. This decrease of $644,000 was due primarily to the
following changes: Fiscal year 1994 had no line-of-credit liability, had
more cash and inventory, and had no advances from working interest owners
at year end.
Cash as of March 31, 1995 was $325,400, a $133,600 decrease from the
prior year of $459,000. This was primarily due to timing of accounts
payable payments which were made prior to March 31, 1995 as opposed to
payments made shortly after the year end for fiscal 1994.
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Cash provided by operations decreased from $792,400 for the year ended
March 31, 1994 to $780,000 for the year ended March 31, 1995. This 1.5%
change in cash was due to the offsetting balances of decreased net income
with increased DD&A, inventory and payables for fiscal year 1995.
The Company used it's line-of-credit along with the sale of working
interests to facilitate the drilling of 20 wells during fiscal year 1995.
Nine of these wells were dry holes, however, of the eleven commercial
wells, the Company retained an average of 60.45% working interest.
The Company anticipates continuing the sale of working interest and
bank borrowings to facilitate its working capital needs and its drilling
activities for the next fiscal year.
ITEM 3. DESCRIPTION OF PROPERTY.
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OIL AND GAS RESERVES
The table below sets forth the Company's quantities of proved
reserves, as estimated by Robert L. Williams, consulting independent
petroleum engineer, all of which are located in the continental U.S., and
the present value of estimated future net revenues from these reserves on
a non-escalated basis discounted by 10 percent per year as of the last two
fiscal years ending March 31, 1995 and 1996 and as updated by the Company
as of September 30, 1995 and 1996. Reserve estimates are inherently
imprecise and are subject to revisions based on production history, results
of additional exploration and development, prices of oil and gas and other
factors outside the Company's control.
Six Months
Ended Year Ended
September 30, March 31,
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1996 1995 1996 1995
Estimated Proved Gas
Reserves (MCF) 3,592,000 2,646,000 3,218,000 1,814,000
Estimated Proved Oil
Reserves (Bbls) 94,000 117,000 99,000 130,000
Present Value of Future Net
Revenues (before future
income tax expense) 9,650,000 6,672,000 8,087,000 4,666,000
Reference should be made to Supplemental Oil and Gas Information on
pages F-12 - F-13 of this Registration Statement for additional information
pertaining to the Company's proved oil and gas reserves. During fiscal
1996 the Company did not file any reports that include estimates of total
proved net oil or gas reserves with any federal agency other than the
Securities and Exchange Commission.
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PRODUCTION
The following table sets forth the Company's net oil and gas
production for the last two fiscal years and for the second quarter for the
last two fiscal years.
Six Months
Ended Year Ended
September 30, March 31,
---------------- ----------------
1996 1995 1996 1995
Natural Gas (MCF) 526,000 496,000 1,039,000 673,000
Crude Oil & Condensate
(Bbls) 16,000 17,000 35,000 35,000
AVERAGE SALES PRICES AND PRODUCTION COSTS
The following table sets forth the average gross sales price and the
average production cost per unit of oil and gas produced, including
production taxes, for the last two fiscal years and for the second quarter
of the last two fiscal years. For purposes of calculating production cost
per equivalent MCF, barrels of oil have been converted at a ratio of six
MCF of gas for each barrel of oil:
Six Months
Ended Year Ended
September 30, March 31,
---------------- -----------------
1996 1995 1996 1995
Average Sales Price
Gas (per MCF) $2.63 $2.26 $2.50 $2.37
Oil (per Bbl) $20.00 $17.00 $17.00 $16.00
Average Production Cost Per
Equivalent MCF $0.37 $0.34 $0.39 $0.55
PRODUCING WELLS AND DEVELOPMENT ACREAGE
The following table sets forth, as of September 30, 1996, the
approximate number of gross and net producing oil and gas wells and their
related developed acres owned by the Registrant. Productive wells are
producing wells and wells capable of production, including shut-in wells.
Developed acreage consists of acres spaced or assignable to productive
wells.
PRODUCING WELLS DEVELOPED ACRES
------------------------------------ ----------------
OIL GAS GROSS NET
---------------- ---------------- ------ ------
GROSS NET GROSS NET
26 16.9 52 33.8 4,032 2,737
UNDEVELOPED ACREAGE
At September 30, 1996, the Registrant held undeveloped acreage as set
forth below:
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UNDEVELOPED ACRES
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LOCATION GROSS NET
Ohio 21,399 21,399
The following table sets forth the expiration dates of the gross and
net acres subject to its oil and gas leases summarized in the table of
undeveloped acreage.
ACRES EXPIRING
---------------------
GROSS NET
Twelve Months Ending:
March 31, 1997 3,073 3,073
March 31, 1998 5,698 5,698
March 31, 1999 2,175 2,175
March 31, 2000 and later 10,453 10,453
DRILLING ACTIVITIES
The Company's drilling activities for the years ended March 31, 1996
and 1995 are set forth below:
SIX MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
GROSS NET GROSS NET
Exploratory:
Productive 0 0 0 0
Dry 0 0 0 0
Development:
Productive 9 4.44 7 4.23
Dry 4 2.01 3 2.20
MARCH 31, MARCH 31,
1996 1995
----------------- ------------------
GROSS NET GROSS NET
Exploratory:
Productive 0 0 0 0
Dry 2 1.47 2 1.47
Development:
Productive 14 8.45 11 6.65
Dry 2 1.50 7 5.13
The Company's drilling activities are conducted on a contract basis
with independent drilling contractors.
14
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- ----------------------------------------------------------------------
(a)(b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth, as of September 30, 1996 the ownership
of the Registrant's Common Stock by (i) each Director of the Registrant,
(ii) all Executive Officers and Directors of the Registrant as a group, and
(iii) all persons known by the Registrant to own more than 5% of the
Registrant's Common Stock.
Beneficial Ownership (1)
------------------------
Name Number of Shares Percentage
---- ---------------- ----------
Zachary T. Tatum 5,566,622 (2) 53.0%
667-E Lakeview Plaza Blvd.
Worthington, OH 43085
John E. Reynolds 88,056 Nil
11711 Woodruff Ave.
Downey, CA 90241
Charles R. Tatum 1,087,190 10.0%
625 Hotel Circle
San Diego, CA 92108
Lori J. Powell 0 0
667-E Lakeview Plaza Blvd.
Worthington, OH 43085
All Directors and Officers 5,654,678 54.3%
as a Group (3 persons)
_________________________________
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. Under Rule
13d-3(d), shares not outstanding which are subject to options,
warrants, rights or conversion privileges exercisable within 60 days
are deemed outstanding for the purpose of calculating the number and
percentage owned by such person, but are not deemed outstanding for
the purpose of calculating the percentage owned by each other person
listed.
(2) Includes 1,447,592 shares held by Tatum Petroleum Ohio, 356,872 shares
held by Energy Exploration Corporation, 490,959 shares held by Strata
Exploration Corporation and 13,781 shares held by Devonian
Exploration, Inc., all or which may be deemed to be beneficially owned
by Zachary T. Tatum.
(c) CHANGES IN CONTROL.
No understandings, arrangements or agreements are known by management
at this time which would result in a change in control of the Registrant.
15
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
- --------------------------------------------------------------------
(a)(b) IDENTIFICATION OF DIRECTORS, EXECUTIVE OFFICERS AND
SIGNIFICANT EMPLOYEES.
The following sets forth certain information with respect to the
officers and directors of the Registrant.
Name Age Position
Zachary T. Tatum 43 President, Chief Financial Officer,
Chief Executive Officer and a
Director since 1985
Lori J. Powell 37 Secretary, Treasurer and a Director
since 1995
John E. Reynolds 61 Director since 1985
The directors of the Registrant are elected to hold office until the
next annual meeting of shareholders and until their respective successors
have been elected and qualified. Officers of the Registrant are elected by
the Board of Directors and hold office until their successors are elected
and qualified.
The Registrant has no audit or compensation committee.
Biographical information concerning each director and executive
officer, including business experience for the past five years is as
follows:
ZACHARY T. TATUM graduated from California State University at
Fullerton in 1975 with a degree in business/marketing. After graduation,
he was employed part-time by Allison Drilling Company and worked in Eastern
Colorado. In 1977, he acquired a producing property in the Pyramid Hills
Oil Field, Kings County, California, which he operated until the property
was sold in May, 1985. From 1979 to the present, he has been involved in
sponsoring limited partnerships and joint ventures to drill oil and gas
wells in the States of California, Ohio and West Virginia. Mr. Tatum is
also president and a director of the following inactive corporations:
Energy Exploration Corp., a Nevada corporation, of Strata Exploration,
Inc., an Ohio corporation, and of Tatum Petroleum Ohio, Inc., an Ohio
corporation. Mr. Tatum devotes full time to the Registrant.
LORI J. POWELL has been the Registrant's controller since 1991 and a
Director since 1995. She is responsible for the Registrant's financial
statements, filings, contracts and day to day accounting matters. Ms.
Powell obtained a B.S. degree from Azusa Pacific University in 1983 and
devotes full time to the Registrant.
JOHN E. REYNOLDS is the president of Keyline Sales, Inc., Downey,
California, which sells plumbing supplies to the wholesale trade. Mr.
Reynolds is also an investor in other oil and gas ventures.
16
<PAGE>
(c) FAMILY RELATIONSHIPS.
There are no family relationships between or among any officer and
director.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS.
No officer, director, significant employee, promoter or control person
of the Registrant has been involved in any event of the type described in
Item 401(d) of Regulation S-B during the past five years.
ITEM 6. EXECUTIVE COMPENSATION.
- -------------------------------
(a) GENERAL.
The Registrant's President, Mr. Zachary T. Tatum, is the only officer
whose total compensation exceeds $100,000 during the Registrant's most
recent fiscal year.
(b) SUMMARY COMPENSATION TABLE.
The following table sets forth certain information regarding the
compensation paid or accrued by the Registrant to or for the account of the
Chief Executive Officer and each of the Officers of the Registrant whose
total annual compensation exceeded $100,000 during the fiscal years ended
March 31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------------------------------------------------------------
Name and Restricted
Principal Other Annual Stock Options/ LTIP All Other
Position Year Salary Bonuses($) Compensation Awards SARS Payouts($) Compensation
-------- ---- ------ ---------- ------------ ------ ---- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Zachary T. Tatum 1996 $300,000 -0- $ -0- -0- -0- -0- -0-
President and 1995 $300,000 -0- $ -0- -0- -0- -0- -0-
Chief Executive 1994 $ 85,000 -0- $ -0- -0- -0- -0- -0-
Officer
</TABLE>
(c) OPTION/SAR GRANTS TABLE.
Not applicable.
(d) AGGREGATED OPTION/SAR EXERCISE AND FISCAL YEAR-END OPTION/SAR
VALUE TABLE.
Not applicable.
(e) TERM INCENTIVE PLAN ("LTIP") AWARDS TABLE.
Not applicable.
17
<PAGE>
(f) COMPENSATION OF DIRECTORS.
STANDARD ARRANGEMENTS. The Registrant pays its directors $100 per
meeting of the Board of Directors attended. Directors also receive
reimbursement for out-of-pocket expenses incurred by them in connection
with the business of the Registrant.
OTHER ARRANGEMENTS. The Registrant has no other arrangements pursuant
to which any director of the Registrant was compensated during the year
ended March 31, 1996, for services as a director.
(g) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL ARRANGEMENTS.
None.
(h) REPORTING ON REPRICING OF OPTIONS/SARS.
Not Applicable.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------------------------------------------------------
(a)(b) TRANSACTIONS WITH MANAGEMENT AND OTHERS.
The Registrant transports a portion of its gas production over a gas
gathering system and a pipeline which are owned by Sol Ltd., a company
owned by the wife of the Registrant's president, Mr. Zachary T. Tatum.
During the years ended March 31, 1996 and 1995, the Registrant paid
approximately $226,000 and $159,000 in gathering fees and $56,000 and
$34,000 in compression fees for the Registrant's share of gas transported
over these lines to the entity.
On April 1, 1993, the Company sold its natural gas pipeline which is
separate from the gas gathering system and pipeline discussed above, to Sol
Ltd. for $250,000. For financial statement purposes, the Company realized
a loss on this transaction of approximately $86,000. Additional fees for
Registrant gas transported over this pipeline in the amount of $34,000 and
39,000 in 1996 and 1995, respectively, have been forgiven for
administration services the Registrant provides the pipeline.
In 1995 Sol LTD. provided seismic data with a value of approximately
$421,000 in return for a working interest ownership in certain wells. The
value was based on amounts paid by the related party to third parties, and
has been expensed in the Company's 1995 financial statements.
The Company's Board of Directors and its officers are subject to
certain provisions of Delaware law which are designed to eliminate or
minimize the effects of certain potential conflicts of interest. In
addition, the Board of Directors has adopted a policy that provides that
any transaction between the Company and an interested party must be fully
disclosed to the Board of Directors, and that a majority of the directors
not otherwise interested in the transaction
18
<PAGE>
(including a majority of disinterested directors) must make a determination
that such transaction is fair, competitive and commercially reasonable and
on terms and conditions not less favorable to the Company than those
available from unaffiliated third parties.
(c) PARENTS OF THE REGISTRANT.
Zachary T. Tatum may be deemed to be the parent of the Registrant.
See Item 4 above for information concerning the basis of control and
percentage of voting securities owned by Mr. Tatum.
(d) TRANSACTIONS WITH PROMOTERS.
Information required by Item 404 of Regulation S-B is not required to
be presented inasmuch as the Registrant has been organized for more than
five years.
ITEM 8. DESCRIPTION OF SECURITIES.
- ----------------------------------
COMMON STOCK
The Registrant is authorized to issue up to 15,000,000 shares of
Common Stock, $.01 par value. On September 30, 1996, there were 10,418,855
shares of Common Stock issued and outstanding. All shares of Common Stock
have equal voting rights and, when validly issued and outstanding, have one
vote per share in all matters to be voted upon by shareholders. The shares
of Common Stock have no preemptive, subscription, conversion or redemption
rights and may be issued only as fully paid and non-assessable shares.
Cumulative voting in the election of directors is not allowed, which means
that the holders of a majority of the outstanding shares represented at any
meeting at which a quorum is present will be able to elect all of the
directors if they choose to do so and, in such event, the holders of the
remaining shares will not be able to elect any directors. On liquidation
of the Registrant, each common shareholder is entitled to receive a pro
rata share of the Registrant's assets available for distribution to common
stockholders.
DIVIDEND POLICY
Dividends are payable on Common Stock when, as, and if declared by the
Board of Directors out of funds legally available to pay dividends. The
Registrant has paid no cash dividends to date and it does not anticipate
payment of cash dividends in the foreseeable future.
STOCK TRANSFER AGENT
American Securities Transfer and Trust, Denver, Colorado is the
Transfer Agent for the Common Stock.
19
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
- ------------------------------------------------------------------------
AND OTHER SHAREHOLDER MATTERS.
- -----------------------------
(a) MARKET INFORMATION.
Since 1991, when the Registrant deregistered its securities with the
Securities and Exchange Commission, there has been no public market for the
Registrant's shares of common stock. Prior to 1991, the Registrants common
stock had traded only sporadically in the over-the-counter market. To the
Registrant's knowledge, such transactions as did occur may have been
isolated agency trades, or inter-dealer transactions, neither of which
represent the existence of a customary trading market.
(b) HOLDERS.
The number of record holders of the Registrant's common stock on
September 30, 1996 was approximately 398.
(c) DIVIDENDS.
The Registrant has never paid dividends with respect to its common
stock and currently does not have any plans to pay cash dividends in the
future as it intends to retain future earnings to finance the growth of the
business. There are no contractual restrictions on the Registrant's present
or future ability to pay dividends. Future dividend policy is subject to
the discretion of the Board of Directors and is dependent upon a number of
factors, including future earnings, capital requirements and the financial
condition of the Registrant.
ITEM 2. LEGAL PROCEEDINGS.
- --------------------------
The lawsuit entitled COLUMBIA NATURAL RESOURCES, INC. V. TATUM
PETROLEUM CORPORATION, ET AL., assigned Case No. 5:93-CV-0234 in the United
States District Court for the Northern District of Ohio was originally
commenced on February 3, 1993. The plaintiff is Columbia Natural
Resources, Inc., and the defendants are Zachary Tatum, Tatum Petroleum
Corporation, Strata Exploration, Inc., Tatum Petroleum Ohio, Inc. and
Shannon Tatum.
In its complaint, Columbia Natural Resources claims that various
leases were improperly acquired, that its lease rights were defeated as a
result, and that various defendants conspired to defraud the plaintiff. In
particular, the plaintiff alleges that the defendants breached contractual
duties reportedly arising under three farmout agreements and, further,
allegedly used fraudulent means to conceal the alleged breaches of
contract. The plaintiff has requested damages in excess of ten million
dollars and an award of punitive and treble damages, with attorney's fees.
In this same case, the defendants, including Tatum Petroleum
Corporation, have asserted a counterclaim against Columbia Natural
Resources for damages. The counterclaim alleges claims for abuse of
process, slander of title to real property, tortious interference with
business
20
<PAGE>
and contractual relations, and fraud and extortion, among others. The
counterclaim seeks damages in excess of ten million dollars, together with
a treble and punitive damage award, and the recovery of attorney's fees.
The litigation pending in the Holmes County, Ohio Common Pleas Court
entitled YODER V. STOCKER & SITLER OIL CO., ET AL., being Case No. 44-14987,
involves a third-party complaint filed by Columbia Natural Resources
against Tatum Petroleum Corporation and others for indemnity, which was
first commenced on May 29, 1991. This case originally involved an action
by landowners to cancel a lease, and after trial the landowners prevailed
and obtained judgment against Columbia Natural Resources and Stocker &
Sitler, which was appealed but eventually settled. The third-party action
is between third-party plaintiff, Columbia Natural Resources, Inc., and
third-party defendants Tatum Petroleum Corporation, Strata Exploration,
Inc. and Tatum Petroleum Ohio, Inc.
In the third-party complaint, Columbia Natural Resources alleges that
the third-party defendants breached contractual duties reportedly arising
under a farmout agreement and, further, the third-party defendant, Tatum
Petroleum Corporation, in producing a breach of the farmout agreement which
created the landowners claim against third-party plaintiff. On that basis,
the third-party complaint seeks indemnity for the amount paid in settlement
to the landowners, together with attorney's fees.
In connection with the third-party action pending in the Holmes
County, Ohio Common Pleas Court litigation, the third-party defendants have
filed a counterclaim. In their counterclaim, the third-party defendants,
including Tatum Petroleum Corporation, seek the recovery of damages for
abuse of process, tortious interference with business dealings and
relationships and deceptive trade practices, among others, and the
counterclaim seeks damages in excess of $25,000.00, punitive damages and
attorney's fees.
In the YODER V. STOCKER & SITLER OIL COMPANY, ET AL. Case, a Holmes
County, Ohio common Pleas Court jury held in favor of the plaintiff
landowners for $300,000.00 on compensatory damages and, further, ruled that
the plaintiffs were entitled to punitive damages against the defendants,
Stocker & Sitler and Columbia Natural Resources, Inc. That verdict was
entered on March 18, 1994. Thereafter, on May 6, 1994 the court awarded
the plaintiffs the sum of $600,000.00 in punitive damages against the
defendants. The court of appeals reversed the punitive damage award, and
during the course of further appeal, the parties reportedly reached a
settlement for a lump sum of approximately $600,000.00, and Columbia
Natural Resources claims that it incurred an additional sum of
approximately $600,000.00 in attorney's fees and expenses relating to the
landowners' claims.
The Company is unable to predict the outcome of the above-referenced
litigation, however, the Company intends to vigorously defend these
actions.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
- ------------------------------------------------------
During the last three fiscal years, the Registrant's independent
accountants have not resigned, been dismissed or declined to stand for
reelection.
21
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
- ------------------------------------------------
The Registrant has not sold any unregistered securities during the
past three years.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
- --------------------------------------------------
Section 16 of the Registrant's Bylaws provides for the indemnification
of directors and officers of the Registrant as to all expenses incurred or
imposed upon them as a result of actions, suits or proceedings if they act
in good faith and in a manner they reasonably believe to be in or not
opposed to the best interests of the Registrant. The Securities and
Exchange Commission does not recognize any as limitations on management's
liability to the extent any such liability may arise from a violation of
the federal securities laws.
22
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT . . . . . . . . . . . . . . . . . . . . . 24
BALANCE SHEETS - March 31, 1996 and September 30, 1996 (Unaudited) . . 25
STATEMENTS OF OPERATIONS - For the Years Ended March 31, 1996
and 1995 and the Six Months Ended September 30, 1996
and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . 26
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - For the Period
from April 1, 1994 to September 30, 1996 (Unaudited) . . . . . . . 27
STATEMENTS OF CASH FLOWS - For the Years Ended March 31, 1996
and 1995 and the Six Months Ended September 30, 1996
and 1995 (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . 28
NOTES TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . 29
23
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Tatum Petroleum Corporation
Worthington, Ohio
We have audited the accompanying balance sheet of Tatum Petroleum
Corporation as of March 31, 1996, and the related statements of operations,
stockholders' equity, and cash flows for the years ended March 31, 1996 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Tatum Petroleum
Corporation as of March 31, 1996, and the results of its operations and its
cash flows for the years ended March 31, 1996 and 1995, in conformity with
generally accepted accounting principles.
HEIN + ASSOCIATES LLP
Denver, Colorado
June 18, 1996
24
<PAGE>
TATUM PETROLEUM CORPORATION
BALANCE SHEETS
MARCH 31, SEPTEMBER 30,
1996 1996
-------- --------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash $ 416,000 $ 241,000
Receivables:
Oil and gas 642,000 279,000
Joint interest owners 42,000 139,000
Inventory 19,000 185,000
---------- ----------
Total current assets 1,119,000 844,000
PROPERTY AND EQUIPMENT, at cost:
Oil and gas producing properties
(using the successful efforts method
of accounting):
Proved 6,135,000 6,557,000
Unproved 475,000 583,000
Other equipment 132,000 142,000
---------- ----------
6,742,000 7,282,000
Less accumulated depreciation,
depletion, amortization and
impairment (3,464,000) (3,662,000)
---------- ----------
3,278,000 3,620,000
OTHER ASSETS 20,000 17,000
---------- ----------
TOTAL ASSETS $4,417,000 $4,481,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Note payable $ 360,000 $ 375,000
Accounts payable 230,000 342,000
Related party payable - 54,000
Revenue and ad valorem taxes payable 515,000 497,000
Advances from working interest owners 322,000 47,000
Accrued liabilities 83,000 7,000
Income tax payable 20,000 -
---------- ----------
Total current liabilities 1,530,000 1,322,000
DEFERRED TAX LIABILITY 280,000 384,000
COMMITMENT AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized
15,000,000 shares,
10,418,855 shares issued and outstanding 104,000 104,000
Additional paid-in capital 4,877,000 4,877,000
Accumulated deficit (2,374,000) (2,206,000)
---------- ----------
Total stockholders' equity 2,607,000 2,775,000
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,417,000 $4,481,000
========== ==========
See accompanying notes to these financial statements.
25
<PAGE>
TATUM PETROLEUM CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDING MONTHS ENDING
MARCH 31, SEPTEMBER 30,
---------------------- ----------------------
1996 1995 1996 1995
--------- -------- --------- --------
(Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES:
Oil and gas sales $3,083,000 $2,270,000 $1,425,000 $1,425,000
Drilling arrangement
income 95,000 180,000 15,000 76,000
Operating fees 114,000 107,000 70,000 47,000
---------- ---------- ---------- ----------
3,292,000 2,557,000 1,510,000 1,548,000
COSTS AND EXPENSES:
Oil and gas production
costs 536,000 559,000 253,000 225,000
General and
administrative expenses 653,000 554,000 305,000 280,000
Depreciation, depletion
and amortization 495,000 403,000 218,000 149,000
Exploration costs 587,000 574,000 339,000 319,000
Dry hole costs 308,000 334,000 88,000 218,000
---------- ---------- ---------- ----------
2,579,000 2,424,000 1,203,000 1,191,000
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE) 63,000 12,000 (35,000) 17,000
---------- ---------- ---------- ----------
INCOME BEFORE INCOME
TAXES 776,000 145,000 272,000 374,000
---------- ---------- ---------- ----------
INCOME TAX EXPENSE:
Current (20,000) - - -
Deferred (280,000) - (104,000) (142,000)
---------- ---------- ---------- ----------
(300,000) - (104,000) (142,000)
---------- ---------- ---------- ----------
NET INCOME $ 476,000 $ 145,000 $ 168,000 $ 232,000
========== ========== ========== ==========
NET INCOME PER SHARE $ .05 $ .01 $ .02 $ .02
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 10,418,855 10,418,855 10,418,855 10,418,855
========== ========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
26
<PAGE>
TATUM PETROLEUM CORPORATION
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM APRIL 1, 1994 THROUGH SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ------ ------- -----
<S> <C> <C> <C> <C> <C>
BALANCES, April 1, 1994 10,418,855 $ 104,000 $4,877,000 $(2,995,000) $1,986,000
Net income - - - 145,000 145,000
---------- --------- ---------- ---------- ----------
BALANCES, March 31, 1995 10,418,855 104,000 4,877,000 (2,850,000) 2,131,000
Net income - - - 476,000 476,000
---------- -------- ----------- ---------- ----------
BALANCES, March 31, 1996 10,418,855 104,000 4,877,000 (2,374,000) 2,607,000
Net income (unaudited) - - - 168,000 168,000
---------- --------- ---------- ---------- ----------
BALANCES, September 30, 1996
(Unaudited) 10,418,855 $ 104,000 $4,877,000 $(2,206,000) $2,775,000
========== ========= ========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
27
<PAGE>
TATUM PETROLEUM CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDING MONTHS ENDING
MARCH 31, SEPTEMBER 30,
---------------------- ----------------------
1996 1995 1996 1995
--------- -------- --------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 476,000 $ 145,000 $ 168,000 $ 232,000
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation, depletion
and amortization 495,000 403,000 218,000 149,000
Deferred income taxes 280,000 - 104,000 142,000
Gain (loss) on disposal
of equipment (46,000) - 43,000 (10,000)
Changes in operating assets
and liabilities:
Receivables (317,000) (112,000) 266,000 (309,000)
Inventory (9,000) 92,000 (166,000) (5,000)
Prepaid expenses and
other - (24,000) 3,000 (1,000)
Payables 360,000 295,000 112,000 255,000
Accrued liabilities 45,000 (19,000) (335,000) (39,000)
---------- ---------- ---------- ----------
Net cash provided by
operating activities 1,284,000 780,000 413,000 414,000
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property and
equipment (1,370,000) (1,174,000) (621,000) (604,000)
Proceeds from sale of
property and equipment 77,000 - 18,000 10,000
---------- ---------- ---------- ----------
Net cash used in
investing activities (1,293,000) (1,174,000) (603,000) (594,000)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings on line-of-credit 1,400,000 335,000 1,180,000 710,000
Repayments on line-of-credit (1,300,000) (75,000) (1,165,000) (580,000)
---------- ---------- ---------- ----------
Net cash provided by
financing activities 100,000 260,000 15,000 130,000
NET INCREASE (DECREASE) IN CASH 91,000 (134,000) (175,000) (50,000)
CASH, beginning of period 325,000 459,000 416,000 325,000
---------- ---------- ---------- ----------
CASH, end of period $ 416,000 $ 325,000 $ 241,000 $ 275,000
========== ========== ========== ==========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for interest $ 19,000 $ 12,000 $ 12,000 $ 12,000
========== ========== ========== ==========
Seismic data received for
working interest in
producing properties $ - $ 421,000 $ - $ -
========== ========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
28
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
NATURE OF OPERATIONS - Tatum Petroleum Corporation (Tatum) was
incorporated in 1984, and is a Delaware corporation. The Company's
principal operations include the acquisition, exploration and
development of oil and gas properties.
INVENTORY - Inventory represents oil field equipment recorded at the
lower of cost or market, and valued using the specific identification
method.
OIL AND GAS PROPERTIES - The Company's investment in oil and gas
properties is accounted for under the successful efforts method of
accounting. Under this method all costs associated with property
acquisition, successful exploratory wells and all developmental wells
are capitalized. Items charged to expense include geological and
geophysical costs, property carrying costs, costs of unsuccessful
exploratory wells and oil and gas production costs. Oil and gas
properties are assessed periodically by management of the Company to
determine whether impairment has occurred. Capitalized costs of proved
properties are amortized using the unit-of-production method on the
basis of estimated proved oil and gas reserves. Costs of exploratory
wells in progress are capitalized and excluded from depletion until
such time as proved reserves are established or impairment is
determined, generally not greater than one year from completion of
drilling. Gains on the sale of unproved properties and on drilling
arrangement income are recognized on the cost recovery method whereby
proceeds are first applied to recover all related property and
drilling costs before any gain is recognized. In addition, for
exploratory wells, a portion of the gain may be deferred to offset
estimated future drilling costs on an interest retained in the related
property. Income from drilling arrangements is recognized under the
completed contract method.
ENVIRONMENTAL COSTS - The Company believes that the cost to plug and
abandon its wells will be offset by the salvage value of the equipment
on those wells. Consequently, cost to plug and abandon wells are not
accrued for over the lives of the related wells.
OTHER PROPERTY AND EQUIPMENT - Depreciation of other equipment is
computed using the straight-line method over the estimated useful
lives of the assets of three to five years. Expenditures for
maintenance and repairs are expensed as incurred, whereas expenditures
for improvements, replacements and major renewals are capitalized.
Gains and losses from retirement or replacement of other property and
equipment are included in operations.
IMPAIRMENT OF LONG-LIVED ASSETS - Effective July 1, 1996, the Company
adopted Financial Accounting Standards Board Statement 121 (FAS 121).
In the event that facts and circumstances indicate that the cost of
assets or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset
would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value is required.
Adoption of FAS 121 had no effect on the unaudited September 30, 1996
financial statements.
29
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
OPERATING FEES - As operator of oil and gas properties, the Company
receives management fees from oil and gas partnerships for the service
provided. These fees are recorded as income when earned.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in these financial statements and the accompanying notes.
The actual results could differ from those estimates.
The Company's provisions for depreciation and depletion of capitalized
costs of developed oil and gas properties is determined based upon the
estimated quantities of proved oil and gas reserves. The Company's
reserve estimates are determined by an independent petroleum
engineering firm. However, management emphasizes that reserve
estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and gas
properties. Accordingly, these estimates are expected to change as
future information becomes available.
The Company periodically evaluates the carrying value of its developed
oil and gas properties for impairment by comparison to the ceiling for
such properties. In addition to the uncertainties inherent in the
reserve estimation process, the ceiling is affected by historical and
projected prices for oil and natural gas which have typically been
volatile.
It is reasonably possible that the Company's oil and gas reserve
estimates will change in the near term.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair values of
financial instruments under SFAS No. 107, DISCLOSURES ABOUT FAIR VALUE
OF FINANCIAL INSTRUMENTS, are determined at discrete points in time
based on relevant market information. The Company believes that the
fair value of its financial instruments approximate the book value.
CASH AND CASH EQUIVALENTS - For purposes of the statements of cash
flows, the Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash
equivalents.
STOCK-BASED COMPENSATION - In October 1995, the Financial Accounting
Standards Board issued a new statement titled "Accounting for
Stock-Based Compensation" (FAS 123), which the Company adopted effective
July 1, 1996. FAS 123 encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options, and
other equity instruments to employees based on fair value. Companies
that do not adopt the fair value accounting rules must disclose the
impact of adopting the new method in the notes to the financial
statements. Transactions in equity instruments with non-employees for
goods or services must be accounted for on the fair value method. The
Company has elected not to adopt the fair value accounting prescribed
by FAS 123 for employees, but is subject to the disclosure
requirements prescribed by FAS 123.
NET INCOME PER SHARE - Net income per share is based on the weighted
average number of shares outstanding, including common stock
equivalents outstanding during the periods.
30
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
UNAUDITED INFORMATION - The balance sheet as of September 30, 1996 and
the statements of operations for the six months ended September 30,
1995 and 1996 were taken from the Company's books and records without
audit. However, in the opinion of management, such information
includes all adjustments (consisting only of normal recurring
accruals) which are necessary to properly reflect the financial
position of the Company as of September 30, 1996 and the results of
operations for the six months ended September 30, 1995 and 1996. The
interim information is not necessarily indicative of results of
operations expected for the year.
2. INCOME TAXES:
------------
The Company follows the policy of expensing all intangible drilling
and development costs for income tax purposes, whereas such costs are
capitalized for successful wells for financial reporting purposes.
Other timing differences relate to depreciation and depletion methods
used for tax and financial reporting.
The Company has adopted the liability method of accounting for income
taxes as prescribed by Statement of Financial Accounting Standards No.
109 (SFAS 109). Under SFAS 109, the Company reports differences
between book and tax income as deferred tax assets or liabilities.
At March 31, 1996, the Company had available, subject to applicable
limitations, tax net operating loss carryforwards (NOL's) of
approximately $1,018,000 to reduce future taxable income. These
NOL's, if not utilized, will expire in the years 2003 through 2010.
Deferred tax assets and liabilities consist of the following:
MARCH 31,
---------
1996
---------
Deferred assets (liabilities):
Net operating loss carryforward $ 380,000
Property and equipment basis differences (660,000)
----------
Net deferred tax liability $ (280,000)
==========
At March 31, 1995, the Company had a valuation allowance of $45,000
which offset a net deferred tax asset. Due to the use of net
operating loss carryforwards to offset current year taxable income,
the valuation allowance decreased by $45,000 in fiscal 1996.
31
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
Total income tax expense differed from the amounts computed by
applying the Federal statutory tax rates to pretax income as follows:
1996 1995
---- ----
Total expense computed by applying
the U.S. statutory rate 34% 34%
State taxes 4% -%
Use of net operating loss carryforwards (2%) (34%)
Effect of alternative minimum tax and other 3% -%
--- ---
39% $ -%
=== ===
3. NOTE PAYABLE:
------------
The Company has a line of credit for $400,000, subject to a borrowing
base equal to 75% of the Company's receivables which are less than 90
days past due, with interest at prime plus 1.5% (total of 9.75% at
March 31, 1996 and September 30, 1996). As of March 31, 1996, there
was $360,000 outstanding under the line-of-credit. The line-of-credit
expires in September 1997 and is collateralized by the accounts
receivable and a negative pledge covering all the Company's assets.
4. COMMITMENT AND CONTINGENCIES:
----------------------------
The Company leases its office space, which expires May 1997. Minimum
required future lease payments under this noncancellable lease for the
years ending March 31 are as follows:
1997 $ 18,000
1998 18,000
1999 3,000
---------
$ 39,000
=========
Total rental expense charged to operations was $16,400 and $15,800 for
the years ended March 31, 1996 and 1995, respectively.
CONCENTRATIONS OF CREDIT RISK - Credit risk represents the accounting
loss that would be recognized at the reporting date if counterparties
failed completely to perform as contracted. Concentrations of credit
risk (whether on or off balance sheet) that arise from financial
instruments exist for groups of customers or counterparties when they
have similar economic characteristics that would cause their ability
to meet contractual obligations to be similarly effected by changes in
economic or other conditions described below. In accordance with FASB
Statement No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL
INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH
32
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
CONCENTRATIONS OF CREDIT RISK, the credit risk amounts shown do not
take into account the value of any collateral or security.
The Company operates in one industry segment, oil and gas. A
geographic concentration exists because the Company's customers are
generally located in the Eastern United States. Approximately 80% of
the Company's 1996 oil and gas revenues are from gas production, which
is primarily purchased by two customers. The Company does not believe
it is dependent upon either customer, due to the nature of its
production. Financial instruments that subject the Company to credit
risk consist principally of accounts receivable.
During the year, the Company also maintained an uninsured money market
account with a financial institution. At year-end, the Company had
approximately $400,000 deposited in this account.
LITIGATION - The Company is currently involved in a lawsuit entitled
COLUMBIA NATURAL RESOURCES, INC. V. TATUM PETROLEUM CORPORATION,
ET AL. in the United States District Court for the Northern District
of Ohio. The action involves claims by Columbia Natural Resources
that various leases were improperly acquired, that its rights were
defeated, and that the various defendants conspired to defraud the
plaintiff. Likewise, the defendants, including Tatum Petroleum
Corporation, have asserted a counterclaim against Columbia Natural
Resources for damages. The case and claims of Columbia Natural
Resources had originally been dismissed, but on appeal to the United
States Court of Appeals the decision was reversed and remanded for
further proceedings. The prayer for relief in the second amended
complaint seeks an accounting, recovery of actual and punitive
damages, and RICO-enhanced damages. The prayer of the counterclaim by
Tatum Petroleum Corporation and others also seeks significant damages
against Columbia Natural Resources. It is the belief of counsel that
a reasonable chance exists for summary judgment on the complaint of
Columbia Natural Resources, and a dismissal of same, given that the
same Court previously had dismissed the complaint of Columbia Natural
Resources.
5. RELATED PARTY TRANSACTIONS:
--------------------------
The Company transports a portion of its gas production over a gas
gathering system and a pipeline which are owned by an entity
affiliated with the president. During the years ended March 31, 1996
and 1995 and the six months ended September 30, 1996 and 1995, the
Company paid approximately $226,000, $159,000, $111,000, and $108,000
in gathering fees and $56,000, $34,000, $27,000, and $28,000,
respectively, in compression fees for the Company's share of gas
transported over these lines to the entity. These activities resulted
in a net payable to the affiliated entity of $54,000 at September 30,
1996. Additional fees for company gas transported over another
pipeline previously owned by the Company of approximately $34,000,
$39,000, $23,000, and $16,000, respectively, have been forgiven in
exchange for administration services the Company provides the
pipeline. In addition in 1995, a party related to the Company
provided seismic data with a value of approximately $421,000 in return
for a working interest ownership in certain wells. The value was
based on amounts paid by the related party to third parties, and has
been expensed in the accompanying financial statements.
33
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
6. DISCLOSURES ABOUT OIL AND GAS PRODUCING ACTIVITIES:
--------------------------------------------------
All oil and gas operations of the Company are conducted in the United
States. Capitalized costs relating to oil and gas producing
activities are as follows:
MARCH 31,
----------------------
1996 1995
-------- --------
Proved oil and gas producing
properties $5,681,000 $5,286,000
Wells in progress 454,000 364,000
Unproved properties 475,000 376,000
---------- ----------
6,610,000 6,026,000
Accumulated depreciation, depletion
and amortization (3,400,000) (3,639,000)
---------- ----------
$3,210,000 $2,387,000
========== ==========
Costs incurred in oil and gas producing activities, whether
capitalized or expensed, during the years ended March 31, 1996 and
1995 are as follows:
1996 1995
-------- --------
Acquisition costs $ 148,000 $ 271,000
========== ==========
Exploration costs $1,863,000 1,537,000
========== ==========
The Company had no development cost, as each new well was drilled on
a new reservoir.
ESTIMATED QUANTITIES OF PROVED OIL AND GAS RESERVES (UNAUDITED) -
Proved oil and gas reserves are the estimated quantities of crude oil,
which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed
oil and gas reserves are those expected to be recovered through
existing wells with existing equipment and operating methods.
However, reserve information should not be construed as the current
market value of the Company's oil and gas reserves or the costs that
would be incurred to obtain equivalent reserves. Reserve calculations
involve the estimation of future net recoverable reserves of oil and
gas and the timing and amount of future net revenues to be received
therefrom. These estimates are based on numerous factors, many of
which are variable and uncertain. Accordingly, it is common for the
actual production and revenues to vary from earlier estimates.
34
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
The Company has elected to disclose only proved developed reserves, as
the ultimate recovery of proved undeveloped reserves is uncertain.
Reserve estimates for recently drilled wells are subject to
substantial upward or downward revisions after production history
obtained. Hence, reserve estimates and estimates of future net
revenues from production may be subject to substantial revision from
year to year. Reserve information presented herein is based on
reports prepared by independent petroleum engineers for 1996 and 1995.
Set forth below is the unaudited summary of the changes in the net
quantities of the Company's proved oil and gas reserves (in equivalent
MCF's) as of March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------------------- ---------------------
Oil Gas Oil Gas
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Proved developed
reserves, beginning
of year 99,000 3,218,000 130,000 1,814,000
Production (35,000) (1,039,000) (35,000) (673,000)
Discoveries,
extensions and
other additions 26,000 773,000 49,000 2,379,000
Revisions of
previous
estimates 7,000 260,000 (45,000) (302,000)
---------- ---------- ---------- ----------
Proved developed
reserves, end
of year 97,000 3,212,000 99,000 3,218,000
========== ========== ========== ==========
</TABLE>
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED) -
Statement of Financial Accounting Standards No. 69 prescribes
guidelines for computing a standardized measure of future net cash
flows and changes therein relating to estimated proved reserves. The
Company has followed these guidelines which are briefly discussed
below.
Future cash inflows and future production and development costs are
determined by applying year-end prices and costs to the estimated
quantities of oil and gas to be produced. As of year-end, the Company
believes gas prices were unusually high, which has increased the
reserve value for gas not under fixed price long-term contracts.
Estimated future income taxes are computed using current statutory
income tax rates including consideration for estimated future
statutory depletion and tax credits. The resulting future net cash
flows are reduced to present value amounts by applying a 10% annual
discount factor.
The assumptions used to compute the standardized measure are those
prescribed by the Financial Accounting Standards Board and, as such,
do not necessarily reflect the Company's expectations for actual
revenues to be derived from those reserves nor their present worth.
The limitations inherent
35
<PAGE>
TATUM PETROLEUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information for the Period Subsequent to March 31, 1996 is Unaudited)
in the reserve quantity estimation process, as discussed previously,
are equally applicable to the standardized measure computations since
these estimates are the basis for the valuation process.
MARCH 31,
----------------------
1996 1995
-------- --------
Future cash inflows $16,638,000 $9,474,000
Future production costs (3,023,000) (2,338,000)
Future income tax expense (4,046,000) (1,831,000)
---------- ----------
Future net cash flows 9,569,000 5,305,000
10% annual discount for estimated
timing of cash flows (3,862,000) (1,538,000)
---------- ----------
Standardized measure of discounted
future net cash flows $5,707,000 $3,767,000
========== ==========
The following are the principal sources of change in the standardized
measure of discounted future net cash flows for the year ended March
31, 1996:
Standardized measure, March 31, 1995 $3,767,000
Sales of oil and gas, net of
production costs (2,546,000)
Extensions, discoveries and
other, net 3,155,000
Net change due to revisions
in quantity estimates 547,000
Net change due to changes in
prices and production costs 2,620,000
Net change in income taxes (2,214,000)
Accretion of discount 378,000
----------
Standardized measure, March 31, 1996 $5,707,000
==========
36
<PAGE>
PART III
ITEMS 1 AND 2. INDEX AND DESCRIPTION OF EXHIBITS.
- -------------------------------------------------
Number Description
------ -----------
2.1 Certificate of Incorporation, dated July 10, 1985*
2.2 By-laws*
10.1 Natural Gas Purchase Agreement between Registrant and
Energy Marketing Services, Inc. dated December 14, 1994
10.2 Gas Purchase Agreements between the Registrant and East
Ohio Gas Company #10164, #10811 and #11286.
24.1 Consent of Robert L. Williams, Consulting Geologist
24.2 Consent of Hein + Associates LLP dated January 13, 1997
* Previously filed
37
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the Registrant has caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
TATUM PETROLEUM CORPORATION
Date: January 10, 1997 By /s/ Zachary T. Tatum
---------------------------------
Zachary T. Tatum, President, Chief
Executive Officer, Principal
Financial and Accounting Officer
Date: January 10, 1997 By /s/ Lori Powell
---------------------------------
Lori Powell, Controller and
Treasurer
38
NATURAL GAS PURCHASE AGREEMENT
between
Energy Marketing Service, Inc.,
and
Tatum Petroleum Corporation
23876-001 -iii
084-kls
0901931143a
DWA
EXHIBIT 10.1
<PAGE>
Table of Contents
-----------------
Recitals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Article 1. Definitions; Exhibits . . . . . . . . . . . . . . . . . 1
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . 1
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Anniversary Date. . . . . . . . . . . . . . . . . . . . . . . 1
Btu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Commencement Date . . . . . . . . . . . . . . . . . . . . . . 1
Contract Price. . . . . . . . . . . . . . . . . . . . . . . . 1
Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Dekatherm (Dth) . . . . . . . . . . . . . . . . . . . . . . . 2
Delivery Points . . . . . . . . . . . . . . . . . . . . . . . 2
FERC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Initial Term. . . . . . . . . . . . . . . . . . . . . . . . . 2
Mcf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
MMBtu . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Month . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Renewal Term. . . . . . . . . . . . . . . . . . . . . . . . . 2
Subject Wells . . . . . . . . . . . . . . . . . . . . . . . . 2
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Transporter . . . . . . . . . . . . . . . . . . . . . . . . . 2
Transporter's Requirements. . . . . . . . . . . . . . . . . . 3
Section 1.02. Exhibits. . . . . . . . . . . . . . . . . . . . . 3
A Term Sheet . . . . . . . . . . . . . . . . . . . . . . . . 3
B Notices to Seller . . . . . . . . . . . . . . . . . . . . . 3
Article 2. Term. . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.01. Term. . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.02. Termination . . . . . . . . . . . . . . . . . . . 3
Article 3. Sale and Purchase of Gas. . . . . . . . . . . . . . . . 4
Section 3.01. Agreement To Sell and To Purchase . . . . . . . . 4
Section 3.02. Incorporation of Transporter's
Requirements. . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3.03. Quality . . . . . . . . . . . . . . . . . . . . . 4
Section 3.04. Measurement . . . . . . . . . . . . . . . . . . . 5
Article 4. Delivery; Title . . . . . . . . . . . . . . . . . . . . 5
Section 4.01. Pressure. . . . . . . . . . . . . . . . . . . . . 5
Section 4.02. Possession and Responsibility . . . . . . . . . . 5
Section 4.03. Warranty of Title . . . . . . . . . . . . . . . . 5
Article 5. Price; Payment. . . . . . . . . . . . . . . . . . . . . 6
Section 5.01. Price . . . . . . . . . . . . . . . . . . . . . . 6
Section 5.02. Royalty Payments; Taxes . . . . . . . . . . . . . 6
Section 5.03. Payment . . . . . . . . . . . . . . . . . . . . . 6
<PAGE>
Section 5.04. Inspection of Records; Adjustment of
Errors. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Article 6. Force Majeure . . . . . . . . . . . . . . . . . . . . . 8
Section 6.01. Definition of Force Majeure . . . . . . . . . . . 8
Section 6.02. Effect of Force Majeure . . . . . . . . . . . . . 8
Section 6.03. Obligation To Remedy. . . . . . . . . . . . . . . 8
Article 7. Miscellaneous . . . . . . . . . . . . . . . . . . . . . 9
Section 7.01. Governmental Regulation . . . . . . . . . . . . . 9
Section 7.02. Confidentiality . . . . . . . . . . . . . . . . . 9
Section 7.03. Indemnification . . . . . . . . . . . . . . . . . 10
Section 7.04. Notices . . . . . . . . . . . . . . . . . . . . . 10
Section 7.05. Waiver of Breach. . . . . . . . . . . . . . . . . 11
Section 7.06. Time Is of the Essence. . . . . . . . . . . . . . 11
Section 7.07. Severability. . . . . . . . . . . . . . . . . . . 11
Section 7.08. Governing Law; Jurisdiction and Venue . . . . . . 11
Section 7.09. Entire Agreement. . . . . . . . . . . . . . . . . 11
Section 7.10. Amendments. . . . . . . . . . . . . . . . . . . . 12
Section 7.11. Binding Effect; Assignment. . . . . . . . . . . . 12
Section 7.12. Legal Benefits. . . . . . . . . . . . . . . . . . 12
Section 7.13. Captions. . . . . . . . . . . . . . . . . . . . . 12
Section 7.14. Counterparts. . . . . . . . . . . . . . . . . . . 12
<PAGE>
NATURAL GAS PURCHASE AGREEMENT
This is a Natural Gas Purchase Agreement (the "Agreement"), made and
entered into this 14 day of December, 1994, by and between Tatum Petroluem
Corporation ("Seller"), and Energy Marketing Services, Inc., an Ohio
corporation ("Buyer").
RECITALS:
---------
A. Seller is engaged in natural gas exploration and development and
has developed a supply of natural gas from the "Subject Wells" (as
hereinafter defined) that Seller wishes to sell.
B. The parties desire to enter into this Agreement for the sale and
purchase of the natural gas produced from the Subject Wells.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Seller and
Buyer agree as follows:
ARTICLE 1. DEFINITIONS; EXHIBITS
SECTION 1.01. DEFINITIONS. As used in this Agreement, the following
terms shall have the following meanings:
(a) "AGREEMENT" shall mean this Natural Gas Purchase Agreement, as
the same may from time to time be amended or supplemented.
(b) "ANNIVERSARY DATE" shall mean the date identified as the
Anniversary Date in EXHIBIT A.
(c) "BTU" shall mean one British Thermal Unit.
(d) "COMMENCEMENT DATE" shall mean the date identified as the
Commencement Date in EXHIBIT A.
(e) "CONTRACT PRICE" shall mean the price per Dekatherm or Mcf, as
the case may be, that Buyer shall pay Seller for each Dekatherm
or Mcf, as the case may be, delivered to Buyer pursuant to this
Agreement, as designated in EXHIBIT A.
(f) "DAY" shall mean a period of twenty-four (24) consecutive hours
commencing at 8:00 a.m., Eastern Time, on a
<PAGE>
calendar day and ending at 8:00 a.m., Eastern Time on the
following calendar day.
(g) "DEKATHERM (DTH)" shall mean one (1) MMBtu.
(h) "DELIVERY POINTS" shall mean the various locations, as identified
from time to time in EXHIBIT A, at which Seller shall deliver Gas
into the mainline facilities of Transporter for redelivery to
Buyer's account.
(i) "FERC" shall mean the Federal Energy Regulatory Commission or any
successor agency.
(j) "GAS" shall mean natural gas as produced from gas wells and gas
produced in association with oil, excluding any products or
byproducts extracted from gas through processing operations.
(k) "INITIAL TERM" shall mean the period of time identified as the
Initial Term in EXHIBIT A.
(l) "MCF" shall mean one thousand (1,000) cubic feet measured at a
pressure of fourteen and seventy-three hundredths (14.73) pounds
per square inch and at a temperature of sixty degrees (60)
Fahrenheit.
(m) "MMBTU" shall mean one million (1,000,000) Btus.
(n) "MONTH" shall mean the period beginning at 8:00 a.m., Eastern
Time, on the first Day of a calendar month and ending at 8:00
a.m., Eastern Time, on the first Day of the next succeeding
calendar month.
(o) "RENEWAL TERM" shall have the meaning given to such term in
Section 2.01.
(p) "SUBJECT WELLS" shall mean the wells identified as the Subject
Wells in EXHIBIT A.
(q) "TAXES" shall mean all ad valorem, property, occupation,
severance, production, gathering, pipeline, utility, gross
production, gross receipts, sales, use, consumption, excise, and
other taxes, governmental charges, licenses, permits, and
assessments, other than taxes based on excess profits, net
income, or net worth.
(r) "TRANSPORTER" shall mean any third-party transporter identified
as Transporter in EXHIBIT A, with which Buyer has entered, or
will enter, into agreements for the
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transportation and delivery of Seller's natural gas to the
facilities of Buyer's customers.
(s) "TRANSPORTER'S REQUIREMENTS" shall have the meaning given to such
term in Section 3.02.
SECTION 1.02. EXHIBITS. The following Exhibits are attached to and
made a part of this Agreement:
EXHIBIT A TERM SHEET
EXHIBIT B NOTICES TO SELLER
EXHIBIT A may be amended from time to time by mutual agreement, evidenced
by both parties signing appropriate Exhibit addendums. These mutually
agreed upon changes shall be effective as of the date signed. All other
provisions, terms, and conditions in this Agreement shall continue to
remain in full force and effect.
ARTICLE 2. TERM
SECTION 2.01. TERM. This Agreement shall become effective on the date
of its execution by Buyer and Seller, and delivery of Gas shall begin on
the Commencement Date. Unless sooner terminated pursuant to the other
provisions of this Agreement, the Initial Term of this Agreement shall be
as set forth in EXHIBIT A; and such Initial Term shall automatically be
extended for successive additional terms of one (1) year each (a "RENEWAL
TERM") at a new Contract Price determined in accordance with Section
5.01(b).
SECTION 2.02. TERMINATION.
(a) Either party may terminate this Agreement, without cause,
effective as of the Anniversary Date immediately following the expiration
of the Initial Term or any subsequent Renewal Term, by written notice of
termination to the other party no less than sixty (60) Days prior to the
Anniversary Date upon which termination is to be effective.
(b) If any order, opinion, enactment, or regulation of the FERC, any
other governmental body (federal or state) having direct jurisdiction, or
any court proscribes or imposes terms, conditions, regulations, or other
restraints that directly affect the sale, release, purchase, or
transportation of Gas hereunder by or to the parties hereto as originally
contemplated on the date of execution of this Agreement, and, in the sole
judgment of either party, such action would render such party's continued
performance hereunder imprudent, utilizing sound business judgment, the
party so affected may terminate this Agreement upon thirty (30) Days
written notice to the other party.
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(c) No termination of this Agreement by reason of default or breach
of covenant by Seller or Buyer, or by virtue of the expiration of the term
hereof, or by virtue of the exercise of any right of termination contained
herein shall relieve Buyer of its obligation to make payments to Seller for
any amounts due Seller for Gas delivered prior to the time of such
termination or relieve Seller of any of its obligations provided for herein
to indemnify Buyer.
ARTICLE 3. SALE AND PURCHASE OF GAS
SECTION 3.01. AGREEMENT TO SELL AND TO PURCHASE. Subject to the
conditions hereinafter set forth, Seller hereby agrees to sell and to
deliver to Buyer, and Buyer agrees use its best efforts and all due
diligence to purchase and to take from Seller, at the Delivery Points, all
of the Gas that may be produced by or for Seller from the Subject Wells.
SECTION 3.02. INCORPORATION OF TRANSPORTER'S REQUIREMENTS.
Transporter's tariff and its rules, guidelines, and policies
("TRANSPORTER'S REQUIREMENTS"), as the same may be modified or amended from
time to time, shall define and set forth, among other things, the
nominating and operating procedures, units of measurement, measurement
specifications, quality, heating value, testing specifications, and
delivery terms and specifications of the Gas to be delivered to Buyer
pursuant hereto. Transporter's tariff, all such definitions,
specifications, procedures, and terms, and all other terms and provisions
of Transporter relating to the delivery of Gas, are hereby expressly
incorporated herein by reference and shall be applicable to and binding
upon Seller and all Gas sold by Seller to Buyer.
SECTION 3.03. QUALITY.
(a) All Gas delivered by Seller to Buyer's account shall be of
merchantable quality and shall meet or exceed the quality standards set
forth in Transporter's Requirements.
(b) Seller will indemnify, defend, and save Buyer harmless from any
and all suits, actions, debts, accounts, damages, costs, losses, and
expenses, including, but not limited to, attorneys' fees, arising from or
as a result of Seller's Gas failing to meet such quality specifications.
Buyer shall have the right to bill Seller for any such damages, costs,
losses, or expenses incurred by Buyer; and, should Seller fail to pay such
bill, Buyer may deduct the amount of such bill from payment otherwise due
Seller for Gas delivered hereunder.
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SECTION 3.04. MEASUREMENT.
(a) For the purpose of this Agreement all Gas shall be measured in
accordance with Transporter's Requirements at the time of delivery by
Seller to Transporter for transportation to Buyer.
(b) All Gas delivered hereunder shall be measured at the measuring
station(s) on Transporter's system at the Delivery Points. Pursuant to any
rights Buyer may have under any agreements with Transporter, Buyer shall,
at Seller's request, ask for measurement verification in the event of any
dispute regarding measurement; and Seller shall reimburse Buyer for costs
associated with same, or Buyer may offset these costs against proceeds due
Seller.
ARTICLE 4. DELIVERY; TITLE
SECTION 4.01. PRESSURE. Seller shall deliver the Gas at the Delivery
Points at a pressure sufficient to allow the Gas to enter Transporter's
facilities at such Delivery Points.
SECTION 4.02. POSSESSION AND RESPONSIBILITY. Title to all Gas
delivered hereunder shall pass from Seller at the Delivery Points. As
between Buyer and Seller, Seller shall be deemed to be in control and
possession of the Gas hereunder until it shall have been delivered to Buyer
at the Delivery Points, after which Buyer shall be deemed to be in control
and possession of the Gas. Buyer shall have no responsibility with respect
to any Gas hereunder at any time because of anything that may be done,
happen, or arise with respect to said Gas before the Gas reaches the
Delivery Points. In like manner, Seller shall have no responsibility with
respect to any Gas hereunder at any time because of anything that may be
done, happen, or arise with respect to said Gas after it is delivered to
Buyer at the Delivery Points, except as provided for in Section 4.03. Each
party agrees to indemnify and hold the other harmless against any and all
claims for loss, damages, or injury caused or occurring during any period
in which it is deemed to be in possession and control of the Gas. It is the
understanding and intent of the parties hereto that Seller will assume the
full cost and expense, as well as full and complete liability and
responsibility, for collecting and transporting the Gas to the Delivery
Points.
SECTION 4.03. WARRANTY OF TITLE. Seller warrants that it will, at the
time of delivery to Buyer at the Delivery Points, have good title to, or
due authorization to sell on behalf of others, all Gas to be delivered
hereunder and the right to sell said Gas, free and clear of all liens,
encumbrances, and adverse claims whatsoever that would interfere with
Buyer's use of same. Seller
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will indemnify, defend, and save Buyer harmless from all suits, actions,
debts, accounts, damages, costs, losses, and expenses (including attorneys'
fees) arising from or out of adverse claims by any and all persons to Gas
delivered hereunder or to royalties or to any charges against said Gas. If
any adverse claims concerning title to the Gas delivered hereunder are
asserted against Buyer, Buyer shall have the right to withhold payment for
said Gas in accordance with instructions from a judicial court until the
dispute has been resolved or until Seller has furnished bond (in an amount
and with sureties satisfactory to Buyer) conditioned for the protection of
Buyer with respect to any such claim.
ARTICLE 5. PRICE; PAYMENT
SECTION 5.01. PRICE.
(a) The Contract Price per Dekatherm or Mcf, as the case may be, for
Gas delivered at the Delivery Points will be as set forth in EXHIBIT A.
Except as otherwise expressly set forth in this Agreement, such Contract
Price shall be deemed to include all allowances and adjustments, including,
but not limited to, gas heating value, Taxes, and gathering,
transportation, and compression expenses prior to the Delivery Points.
(b) The Contract Price set forth in EXHIBIT A shall remain in effect
for a period of one (1) year. No less than seventy (70) Days prior to the
expiration of the Initial Term or any subsequent Renewal Term, Buyer shall
give Seller written notice setting forth Buyer's new Contract Price
("BUYER'S NOTICE"), to be effective as of the next succeeding Anniversary
Date, for the next succeeding Renewal Term.
SECTION 5.02. ROYALTY PAYMENTS; TAXES. Seller shall pay or cause to
be paid any royalty payments and all Taxes due or levied on the Gas
delivered hereunder prior to its delivery to Buyer at the Delivery Points
and shall indemnify Buyer and hold Buyer harmless from any liability or
obligation for the payment of same. It is contemplated that the Contract
Price will reimburse Seller for any such Taxes as may be levied, and Seller
may not charge Buyer additional amounts for any such taxes, new Taxes, or
any increase in Tax amounts.
SECTION 5.03. PAYMENT.
(a) The volumes of Gas delivered pursuant to this Agreement shall be
determined by the measurement procedures of Buyer's agreements with its
third party purchasers. Buyer shall render to Seller, on a Monthly basis,
an estimated volume statement. The
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methodology used to determine THE ESTIMATED VOLUME WILL BE 80 PERCENT TIMES
(X) THE PREVIOUS MONTH ACTUAL VOLUME AS SHOWN ON THE TRANSPORTER'S
PRODUCTION STATEMENTS. Buyer shall remit to Seller the amounts due for the
volumes of Gas delivered pursuant to this Agreement on the 25th day of the
month. Correction of the volume estimated and paid for will be adjusted for
the actual volume upon receipt of the Transporter's Production statement.
A copy will be provided by Buyer to Seller with the adjusted for actual
volume payment on the 25th day of the month.
(b)Although the terms of this Agreement extend to and are binding on
all parties to it, and on their respective heirs, successors, personal
representatives, and assigns, Buyer will in no event issue, or be required
to issue, more than one (1) Monthly check in payment of the emoluments
hereunder. If, at any time, more than one (1) person or entity becomes
entitled to payment hereunder for the emoluments hereunder, Buyer may
withhold such payment, without interest, unless and until Buyer is
furnished by Seller with the necessary documentation (properly executed and
acknowledged by all parties) designating an agent to receive payments
hereunder, to allocate, to prorate, and to distribute such payments among
the various parties Seller, and to do and to receive all things provided
for concerning Seller in this Agreement. Buyer may act, and shall be fully
protected in acting, in reliance upon any and all acts and things done or
performed by such agent on behalf of the parties Seller, as fully and
effectively as though each Seller had done, performed, made, or executed
the same. Such agent shall indemnify Buyer and hold Buyer harmless from any
liability or obligation and/or any claim of any party (including royalty
owners, whom agent shall have the obligation to pay or to cause to be paid)
with respect to any payments made by Buyer to such agent hereunder.
SECTION 5.04. INSPECTION OF RECORDS; ADJUSTMENT OF ERRORS. Each party
shall have the right at all reasonable times during business hours and upon
reasonable notice to examine the books, billing statements, records,
charts, meters, measuring equipment, and other pertinent matter or data of
the other party to the extent necessary to verify the accuracy of any
statement, charge, computation, or demand made under or pursuant to any of
the provisions of this Agreement. If any such examination shall reveal, or
if either party shall otherwise discover, any error or inaccuracy in its
own or the other party's statements, payments, calculations, or
determinations, then, within thirty (30) Days after the final determination
thereof, Seller shall refund the amount of any overpayment or Buyer shall
pay the amount of any underpayment; PROVIDED, HOWEVER, that no adjustment
of any statement, billing, or payment shall be made after the lapse of
twenty-four (24) Months from the date of such statement, billing, or
payment.
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ARTICLE 6. FORCE MAJEURE
SECTION 6.01. DEFINITION OF FORCE MAJEURE. The term "FORCE MAJEURE,"
as used in this Agreement, shall mean acts of God; fires, storms, floods,
washouts, landslides, lightning, earthquakes, epidemics, and casualties;
acts of law, acts of federal, state, or local governments and/or their duly
constituted agencies, and the orders of any court or governmental authority
that render performance of obligations under this Agreement impossible;
acts of the public enemy, sabotage, wars, blockades, insurrections, civil
disturbances, rebellion, riots, vandalism, interruption of civil or public
service, arrests, and restraints; strikes, lockouts, and other industrial
disturbances; the inability to acquire, or delays in acquiring, at
reasonable cost and after the exercise of reasonable diligence, materials,
supplies, contractors, labor, transportation, and such servitudes, rights
of way, permits, licenses, approvals, and authorizations by regulatory
bodies as may be necessary in order that obligations assumed hereunder may
be lawfully performed in the manner herein contemplated; explosions, well
blowouts, craterings, the freezing of wells or lines of pipe, hydrate
obstructions of lines of pipe, breakage of or accident to machinery,
equipment, or lines of pipe, and the making of repairs, alterations, or
tests on machinery, equipment, or lines of pipe; any interruption of
delivery by a transporter of Gas for Seller or Buyer, the failure of any
pipeline to accept all or any portion of the Gas for delivery, and any act
or omission on the part of any purchaser of Gas from Buyer by reason of
FORCE MAJEURE affecting such purchaser; and any other causes, whether of
the kind herein enumerated or otherwise, that are not reasonably within the
control of the party claiming suspension and that, by the exercise of due
diligence, such party is unable to prevent or to overcome.
SECTION 6.02. EFFECT OF FORCE MAJEURE. If either party is rendered
unable, wholly or in part, by FORCE MAJEURE to perform or to comply with
any obligation or condition of this Agreement, all obligations of both
parties shall be suspended during the continuance of the inability so
caused, and the parties shall be relieved of liability and shall suffer no
prejudice for failure to perform the same during such period; PROVIDED,
HOWEVER, that Buyer's obligation to make payments for Gas accepted shall
not be suspended, and FURTHER PROVIDED that the dedication of Seller's
leaseholds and/or wells shall not be waived or suspended.
SECTION 6.03. OBLIGATION TO REMEDY. Each party agrees to exercise all
reasonable efforts to remedy any situation that might interfere with the
performance of its obligations hereunder; PROVIDED, HOWEVER, that the
settlement of strikes, lockouts, or other industrial disturbances shall be
entirely within the discretion of the party having the difficulty and that
the term
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"all reasonable efforts" shall not require the settlement of strikes,
lockouts, or other industrial disturbances by acceding to the demands of an
opposing party when such course of action is inadvisable in the discretion
or judgement of the party having the difficulty. Whenever possible, advance
notice of a FORCE MAJEURE occurrence shall be given to the other party, and
in all cases notice and reasonably full particulars of the occurrence shall
be provided to the other party as soon as reasonably possible after the
occurrence of the cause relied on. As soon as possible after the FORCE
MAJEURE event shall have been remedied, the party claiming suspension shall
likewise give notice to the effect that the same has been remedied and that
such party has resumed, or is then in a position to resume, the performance
of its obligations.
ARTICLE 7. MISCELLANEOUS
SECTION 7.01. GOVERNMENTAL REGULATION. This Agreement is subject to
all applicable federal, state, and local laws and ordinances, and to the
orders, rules, and regulations of any federal, state, or local regulatory
or administrative body or authority having jurisdiction in the premises.
Neither party shall be held in default for failure to perform hereunder if
such failure is due to compliance with such laws, ordinances, orders,
rules, or regulations. Should either Buyer or Seller, by law or regulation,
be ordered or required to do any act inconsistent with the provisions of
this Agreement, this Agreement shall be deemed modified to conform with
such law or regulation. Nothing in this Agreement shall prevent either
party from contesting the validity of any such law, order, rule, or
regulation, nor shall anything in this Agreement be construed to require
either party to waive its right to assert the lack of jurisdiction of such
regulatory body, governmental entity, or agency over this Agreement or any
party hereto; but Buyer and Seller agree that neither of them will
initiate, advocate, or voluntarily support any action before any regulatory
agency or authority that would or might alter or adversely affect the terms
hereof.
SECTION 7.02. CONFIDENTIALITY. Buyer and Seller mutually agree that
they shall maintain this Agreement and its terms and conditions in strict
confidence and that they will not, without the prior written consent of the
other (which consent shall not be unreasonably withheld), cause or permit
disclosure of the contents hereof to any third party. The foregoing
notwithstanding, either party may make such disclosure without the prior
written consent of the other, if such disclosure is required by valid law,
regulation, or legal order; PROVIDED, HOWEVER, that the party required to
make such disclosure shall (a) provide the other party with prompt notice
of such requirement to enable that party to seek an
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appropriate protective order and (b) take all reasonable steps to protect
the confidentiality of this Agreement.
SECTION 7.03. INDEMNIFICATION. Seller shall save harmless and
indemnify Buyer from any and all loss, injury, death, or damage (regardless
of whether such loss, injury, death, or damage occurs to an employee or
employees or property of Buyer or to any one or more of the persons or
employees or property of any other related or unrelated individual or
entity), or claim of loss, injury, death, or damage, together with all
costs, including attorneys' fees, incident to any such claim, caused or
occasioned by the negligence or willful misconduct of Seller or its
employees, agents, subcontractors, suppliers, or affiliates. Seller shall
also save harmless and indemnify Buyer from any loss, injury, or death to
Seller's own employees or the employees of its agents, subcontractors,
suppliers, or affiliates, wherever occurring.
SECTION 7.04. NOTICES.
(a) Except as otherwise provided herein, any notice, request, demand,
statement, or bill provided for in this Agreement, or any notice that
either party may desire to give to the other, shall be in writing and shall
be deemed to have been duly given as follows:
(1) upon receipt, when delivered personally to a party at its address
as hereinafter set forth;
(2) one business Day after being delivered to a reputable overnight
courier service, prepaid, marked for next Day delivery to a party
at its address as hereinafter set forth; or
(3) upon receipt, via telefacsimile and confirmed receipt by
telephone; or
(4) on the third business Day after being mailed by United States
mail first class, registered or certified, return receipt
requested, postage prepaid, addressed to a party at its address
as hereinafter set forth.
(b) All notices, requests, demands, statements, or bills to be given
to Buyer pursuant to this Agreement shall be sent to Buyer at the following
address:
Energy Marketing Services, Inc.
355 East Campus View Boulevard, Suite 150
Columbus, OH 43235
Attention: Janet M. Jones, Chief Executive Officer
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(c) All notices, requests, demands, statements, or bills to be given
to Seller pursuant to this Agreement shall be sent to Seller at the address
set forth in EXHIBIT B.
(d) Either party may at any time change its address for such notices,
requests, demands, statements, or bills by giving the other party written
notice thereof in accordance Section 7.04(a).
SECTION 7.05. WAIVER OF BREACH. No waiver by either party will be
effective unless it is in writing and then only to the extent specifically
stated. No failure on the part of either party to exercise, and no delay in
exercising, any right, power, or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power,
or remedy by any party preclude any other or further exercise thereof or
the exercise of any other right, power, or remedy. Failure of either party
to demand strict performance of the provisions of this Agreement by the
other party, or any forbearance by either party in exercising any right or
remedy hereunder or otherwise afforded by law, shall not constitute a
waiver by such party of any provision of this Agreement. Any condition,
term, or covenant in this Agreement that is not complied with will be
considered a breach.
SECTION 7.06. TIME IS OF THE ESSENCE. Time is of the essence in the
compliance with the terms and conditions of this Agreement.
SECTION 7.07. SEVERABILITY. Whenever possible each provision of this
Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but, if any provision of this Agreement shall
be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
SECTION 7.08. GOVERNING LAW; JURISDICTION AND VENUE. This Agreement
shall be deemed to be made under and shall be governed by the laws of the
State of Ohio in all respects, including matters of construction, validity,
and performance, notwithstanding the place where this Agreement may be
executed or performed by either party hereto. The parties agree that
jurisdiction and venue shall be proper only in the Franklin County, Ohio,
Court of Common Pleas, and the United States District Court for the
Southern District of Ohio.
SECTION 7.09. ENTIRE AGREEMENT. This Agreement (including the
Exhibits hereto, which are by this reference incorporated herein and made
a part hereof) sets forth all understandings between the parties respecting
the subject matter of this transaction, and all prior agreements,
understandings, and representations, whether oral or written, representing
this subject
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matter are merged into and superseded by this written Agreement No course
of prior dealings between the parties and no usage trade shall be relevant
or admissible to supplement, to explain, to vary any of the terms of this
Agreement.
SECTION 7.10. AMENDMENTS. No modification or amendment of this
Agreement shall be binding on either party unless in writing and signed by
both parties. EXHIBIT A may be modified in accordance with Section 1.02.
SECTION 7.11. BINDING EFFECT; ASSIGNMENT. This Agreement, and the
terms, covenants, and conditions hereof, shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, executors,
administrators, successors, and assigns; PROVIDED, HOWEVER, that neither
party may assign this Agreement, in whole or in part, without the prior
written consent of the other, which consent shall not unreasonably be
withheld. No such consent shall be required, however, in those cases in
which a party wishes to pledge or to mortgage its interests or rights
hereunder as security for its indebtedness, or to dispose of its interests
by merger, reorganization, consolidation, or sale of all or substantially
all of its assets to a subsidiary or parent company, or to a subsidiary of
a parent company, or to any company in which any one party owns a majority
of the stock.
SECTION 7.12. LEGAL BENEFITS. It is understood and agreed that Seller
is not a party to or a third-party beneficiary of Buyer's agreements with
its ultimate purchasers. Since Buyer has many suppliers of Gas to its
ultimate purchasers, it would be impossible to determine the extent of the
contribution by any one seller toward Buyer's agreements with its ultimate
purchasers. Therefore, in the event of a dispute between Buyer and any
ultimate purchaser, Seller may look only to Buyer for payment for Gas sold
to Buyer and is not entitled to any damages, if any, that Buyer may recover
from any ultimate purchasers.
SECTION 7.13. CAPTIONS. The captions or headings at the beginning of
each article and section of this Agreement are merely guides or labels for
the convenience of the parties to assist in identifying those articles and
sections, are not intended to be a part of the context of this Agreement,
and shall not be deemed to modify, to explain, to enlarge, or to restrict
any of the provisions hereof.
SECTION 7.14. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Natural Gas
Purchase Agreement effective as of the date first set forth above.
WITNESSES: BUYER:
ENERGY MARKETING SERVICES, INC.
AMY RAWLINS By: /s/ JANET M. JONES
- -------------------------- ----------------------------
/s/ SUSAN STAHL Chief Executive Officer
- -------------------------- ----------------------------
SELLER:
TATUM PETROLEUM CORPORATION
By: /s/ ZACHARY T. TATUM
- -------------------------- ----------------------------
its President
- -------------------------- ----------------------------
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EXHIBIT A
TERM SHEET
----------
ANNIVERSARY DATE: February 1
COMMENCEMENT DATE: February 1, 1995
INITIAL TERM: a period of one (1) year commencing on the
Commencement Date and ending on January 31,
1996
SUBJECT WELLS: See EXHIBIT A-1
CONTRACT PRICE: Buyer shall pay Seller a monthly price based
on 100% the index price reported for spot
market gas supplies for the delivery month,
per dekatherm, less the applicable Columbia
Gas Transmission gathering charge in effect
for the period February 1, 1995 through
January 31, 1996. The index to be utilized
will be the INSIDE F.E.R.C.'S GAS MARKET
REPORT publication. The monthly price will
be comprised of the first of the delivery
month posted index price for Appalachia
(West Virginia, Ohio, Kentucky) supplies.
TRANSPORTER: Columbia Gas Transmission Corporation
DELIVERY POINTS: Columbia Gas Transmission Mainline
This Exhibit is attached to and a part of that certain Natural Gas
Purchase Agreement, dated as of 12/14, 1994, between Energy Marketing
Services, Inc., and Tatum Petroleum Corporation (the "AGREEMENT"). This
Exhibit is effective as of Feb. 1,1995. Except as herein modified, all
specifications, terms, and conditions concurrently applicable to the
Agreement shall remain in full force and effect.
BUYER: SELLER:
ENERGY MARKETING SERVICES, INC. TATUM PETROLEUM CORPORATION
By: /s/ JANET M. JONES By: /s/ ZACHARY T. TATUM
- -------------------------- ----------------------------
Chief Executive Officer President
Date: 12/14/94 Date: 12/13/94
10164
NEW GAS
FIXED PRICE
LIFE OF WELL
GAS PURCHASE AGREEMENT
TABLE OF CONTENTS
-----------------
Page
----
Article I Term 1
Article II Point(s) of Delivery and Quality of Gas 3
Article III Measurement 7
Article IV Obligations to Take and Deliver Gas 9
Article V Price 12
Article VI Force Majeure 13
Article VII Liability 14
Article VIII Notices 15
Article IX Production Period and Statement 15
Article X Further Obligations and Representations 16
Article XI Miscellaneous 20
Exhibit
- -------
A - Dedicated Wells
GPC-LOW 6/91
EXHIBIT 10.2
<PAGE>
NEW GAS
LIFE OF WELL
FIXED PRICE
GAS PURCHASE AGREEMENT
----------------------
THIS AGREEMENT, (the "Agreement"), effective as of the 2nd day of
August, 1991, is entered into by and between Tatum Petroleum Corporation,
the "Seller," and The East Ohio Gas Company, an Ohio corporation, the
"Buyer."
RECITAL
-------
WHEREAS Seller desires to sell and deliver to Buyer, and Buyer desires
to purchase from Seller, at the Point(s) of Delivery specified in the
Agreement, all the natural gas produced from and during the life of the
Ohio well or wells described in Exhibit A attached and made a part of the
Agreement, at the prices and upon and subject to the terms, conditions and
limitations provided in the Agreement;
NOW THEREFORE, in consideration of their mutual covenants and promises
contained in the Agreement, Seller and Buyer agree as follows:
ARTICLE I
TERM
----
1. The Agreement shall continue in force from its date for fifteen
years and for as long thereafter as gas from any well listed on Exhibit A
can be produced in paying and marketable quantities, provided, however,
that if at any time the delivery by Seller at the Point(s) of Delivery of
gas from any well
GPC-LOW 6/91
Page 1
<PAGE>
subject to the Agreement shall be less than an average of twenty thousand
cubic feet per day for any Production Period during which neither the
delivery nor receipt of gas has been interrupted pursuant to Articles II,
IV or VI of the Agreement, then Buyer, at its sole option, may terminate
the Agreement as to the gas produced from any such well, or from each of
such wells if there are more than one, by giving Seller thirty days prior
written notice of such termination.
2. Additional wells may be added to Exhibit A and existing wells
listed on Exhibit A may be abandoned during the term of the agreement, but
such additions or abandonment shall only be permitted and become effective
after the execution of a written supplement to Exhibit A, executed by both
Buyer and Seller, specifying the effective date of any such additions or
abandonments. The execution of such supplements shall be at the sole
discretion of Buyer, which has no obligation to execute any such
supplement.
3. The Agreement shall not extend and become effective as to any
well listed on Exhibit A or on any supplement to Exhibit A unless such well
is turned on and gas from it is being received by Buyer at the Point(s) of
Delivery within ninety days of the date of either the Agreement or the
execution of the supplement to Exhibit A, whichever includes such well.
4. Termination for any cause shall not affect either party's rights
or duties arising prior to such termination.
GPC-LOW 6/91
Page 2
<PAGE>
ARTICLE II
POINT(S) OF DELIVERY
AND QUALITY OF GAS
------------------
1. Seller shall promptly proceed with the construction of any
necessary pipe line extending from the well or wells subject to the
Agreement to the terminal point or points determined by Buyer, hereinafter
referred to as the "Point(s) of Delivery." The Point(s) of Delivery shall
be measuring stations furnished, constructed, owned, operated and
maintained by Buyer, located on Buyer's pipe lines as now constructed or on
any extension which may later be constructed. The sites for said measuring
stations shall be furnished by Buyer, or, if by Seller, with rights of
ingress and egress granted to Buyer. As soon as practicable after
completion of a pipe line by Seller to a Point of Delivery, Buyer shall
construct the necessary gas measuring station. Buyer may at any time, at
its option, install additional measuring equipment so as to individually
meter the gas from any well subject to the Agreement. Seller may request
that Buyer change any Point of Delivery after its location has been
originally established. If Buyer, in its sole discretion, agrees to make
such a change, all costs incurred by Buyer for any alternate site, for the
movement of any measuring and regulating station equipment, or for any new
or additional metering facilities will be promptly reimbursed to Buyer by
Seller after receipt of an itemized invoice.
2. Seller's rights as Lessee under the terms of any lease pursuant to
which any well subject to the Agreement is drilled, for the purposes of
installing, operating, maintaining and
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removing any facilities and equipment, including measuring equipment, and
its rights of ingress and egress to the well and measuring station, shall
be extended to Buyer. Seller shall provide and maintain in good repair
access roads, suitable for use by Buyer's vehicles, to all well sites and
measuring stations. Should Seller not secure, provide and maintain both
physical and legal access to any well or wells subject to the Agreement for
Buyer, then Buyer shall, in its sole discretion, have the right to
terminate the Agreement as to such well or wells.
3. Seller may use such mechanical pressurization as it deems
necessary to deliver gas to Buyer at the Point(s) of Delivery, but the gas
shall be taken by Buyer against such pipe line pressures as Buyer in its
sole judgment deems necessary to maintain in its pipe line system either by
reason of its market demands and deliveries of gas into its pipe line
system from other sources of supply or in accordance with good safety
practices and requirements and the regulations of government authorities.
Should Seller compress and pump the gas to be delivered to Buyer at the
Point(s) of Delivery, Seller shall also install and maintain at its own
expense the necessary equipment for the elimination or suppression of
pulsations in the flowing gas that are created by compression equipment,
and, in addition, Seller will install the necessary equipment to insure a
flowing temperature not to exceed 120 degrees Fahrenheit at the Point(s) of
Delivery.
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4. Buyer may at any time suspend the taking of gas hereunder for
safety reasons or while making repairs or alterations to, or conducting
tests of, its pipelines or other facilities. When practicable Buyer shall
notify Seller in advance of its plans to suspend the taking of gas, giving
its best estimate of the duration of the suspension. Such repairs,
alterations or test; shall be completed with due diligence. Any period of
suspension of Purchases pursuant to this paragraph shall be in addition to
all other rights of Buyer to suspend purchases pursuant to the Agreement.
5. Seller shall install and maintain, at Seller's expense, the
necessary equipment for separating and removing oil, water, salt, crust,
sulphur or sulphur compounds, nitrogen or nitrogen compounds, and other
gaseous impurities, objectionable odors, and foreign matter or substances
and mechanical pulsations from the gas before its delivery to Buyer at
Point(s) of Delivery. Seller is obligated to deliver to Buyer at the
Point(s) of Delivery only such gas as is free from all substances or
flowing conditions which might affect or impair its marketability or cause
injury to or interference with the operation of the pipe lines, regulators,
meters or other equipment of Buyer or Buyer's customers. Buyer may refuse
at any time any gas which contains gaseous impurities or objectionable
odors or otherwise does not meet Buyer's gas quality standards. Other than
as provided for in this paragraph, however, the gas delivered to Buyer
hereunder shall be delivered in its natural state without any of its
component parts having been extracted.
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6. Seller at all times shall deliver to Buyer at the Point(s) of
Delivery gas having a gross heating value of not less than 1,000 British
thermal units per cubic foot at 14.73 pounds per square inch absolute
("PSIA"), sixty degrees Fahrenheit and saturated with water vapor. Seller
shall deliver only such gas which does not contain more than 1/4 grain of
hydrogen sulfide per 100 cubic feet of gas volume (8 ppm of sulfur, by
weight) nor contain more than 3/4 grain of total sulfur per 100 cubic feet
of gas volume (22 ppm of sulfur, by weight).
7. If, by reason of the presence of any impurities in the gas
delivered to Buyer, or as a result of any other act or failure to act which
is inconsistent with the provisions of this Article II, any of Buyer's
property or equipment is damaged or otherwise rendered inoperative, Buyer
shall bill Seller, and Seller shall pay within fifteen days of receipt of
an itemized invoice, for the cost of all necessary repairs, corrections and
replacements.
8. All pipe lines, fittings, and other properties furnished under the
Agreement shall remain the property of the party furnishing the same who
shall be solely responsible for the maintenance and operation thereof, and
each party may remove its property at the termination of the Agreement,
provided however, that any property the cost of which has been reimbursed
to Buyer by Seller pursuant to paragraph 1 of this Article II shall remain
the property of, and shall be operated and maintained by, Buyer.
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ARTICLE III
MEASUREMENT
-----------
1. The unit of measurement for gas hereunder shall be one cubic foot
of gas, and the term "cubic foot of gas" means a cubic foot of gas at a
pressure of 14.73 pounds per square inch absolute and at a temperature of
sixty degrees (60) Fahrenheit. For purposes of measurement and meter
calibration, atmospheric pressure shall be assumed to be 14.4 PSIA. All gas
delivered to Buyer by Seller hereunder shall be measured by orifice or
other measurement facility of standard type to be selected and furnished by
Buyer. Orifice meters of Buyer shall be constructed and installed in
accordance with the applicable provisions of the American National Standard
"Orifice Metering of Natural Gas," ANSI/API 2530, First Edition, and any
amendments thereto. The volumes of gas delivered to Buyer at pipeline
pressures and temperatures shall be computed from meter records and
converted into the cubic foot or thousand cubic foot ("MCF") unit of
measurement specified here in accordance with standard industry practice.
Correction shall not be made for deviation from the Ideal Gas Laws. The
temperature of the gas flowing through each meter is assumed to be sixty
degrees (60) Fahrenheit, provided, however, that Buyer may at any time
install a recording thermometer to record the temperatures of the gas
flowing through the meter, in which event the arithmetic average of the
hourly temperatures recorded shall thereafter be used in correcting the
volumes delivered hereunder to the unit of measurement specified herein
above.
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2. Buyer shall furnish, install and maintain in good condition all
meters and regulating equipment at the Point(s) of Delivery. Buyer shall
read the meters, which shall be accessible to inspection and examination by
Seller at all reasonable times. If Seller challenges the accuracy of any
meter or measuring equipment in use under this Agreement and desires to
have the same tested, Buyer shall, if Seller desires, perform the test in
the presence of Seller or Seller's representative. The cost of testing the
meter shall be borne by Seller if the meter proves to be correct, and it
shall be deemed correct if there shall be no greater variation than three
percent (3%), either plus or minus. If the meter on test proves incorrect,
then the cost of testing shall be borne by Buyer. If a meter does prove
incorrect, as provided herein, the registration of such meter shall be
corrected at the rate of such inaccuracy for a period agreed upon by the
Buyer and Seller. In no event will the inaccuracy adjustment period exceed
the lesser of one half the period of time from the last test, or the period
from the first of the preceding Production Period prior to the date of
challenge by either party. For the purpose of testing, the meter shall be
tested and adjusted on the ground. During the time a meter is disconnected
from the line, the gas delivered may be estimated by Buyer until the meter
is again connected to the line, such estimate to be on the basis of the
amount of gas registered at like pressures for like periods of time when
the meter was registering accurately.
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ARTICLE IV
OBLIGATIONS TO TAKE
AND DELIVER GAS
---------------
1. Subject the terms and conditions of the Agreement, Buyer shall buy
all the gas delivered to it by Seller at the Point(s) of Delivery, and
Seller shall, and is obligated to use its best efforts to, produce, deliver
and sell to Buyer all the gas owned, produced or purchased by Seller from
all wells listed on Exhibit A on each day of the term of the Agreement, in
an efficient and expeditious manner, other than that required for drilling
operations with respect to such wells. However, if required by the terms of
the oil and gas lease pursuant to which the gas subject to the Agreement is
produced, Seller may also provide up to 300 MCF per year to one dwelling on
the leased property from one well. Further, if required by the lease, each
additional dwelling on the leased property, if any, may also be provided
with up to 300 MCF per year if an additional well is producing gas on the
leased property for each such additional dwelling. In no event shall any
dwelling receive gas from more than one well, nor shall any well provide
gas for more than one dwelling, no matter how many dwellings or wells are
located on the leased property. If any other or greater volumes are
diverted from Buyer, then, at buyer's option, the price per MCF set forth
in Article V will become, for all gas from each well from which the excess
volumes were diverted, the Short Term Spot Price being paid by Buyer at the
time of the diversion, as such price may be amended by Buyer. The adjusted
price shall continue for a period of one year and as long thereafter as the
unauthorized diversion
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continues. Further, if the unauthorized diversion continues beyond one
year, Buyer at its option may take any or all of the following actions:
invoice Seller for the cost of the measuring station, impose a fee of two
cents ($.02) per MCF to pay for the costs of measuring the gas, withhold
such fees or costs from payments for gas volumes associated with the well
or wells, and treat the diversion as a breach of the Agreement and pursue
any or all legal and equitable remedies, including termination and specific
performance. Buyer will immediately notify Seller in writing of any
unauthorized diverted volumes it becomes aware of and its actions in
response thereto.
2. It is understood and agreed, however, that Buyer's obligation to
take gas from any well or wells subject to the Agreement, in addition to
the limitations imposed elsewhere by the Agreement, is limited to one
hundred and eighty (180) days in each or any calendar year beginning
January 1 and ending December 31, except for the initial calendar year,
being the year in which gas from any well listed on Exhibit A is first
produced and delivered at the Point(s) of Delivery, during which period
Buyer agrees to take gas at least fifty percent (50%) of the time remaining
after the initial delivery date until the end of the initial calendar year.
Pursuant to this paragraph Buyer may suspend taking gas at any time and for
any reason, including price, but Buyer shall have the right to require
delivery or the resumption of delivery of gas on each day of every year,
subject to the terms of the Agreement.
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3. If Buyer wishes Seller to cease delivering gas from any or all
wells subject to this Agreement pursuant to any provision of the Agreement,
Buyer shall notify Seller by telephone or letter, and Seller, on receipt of
such notice, shall immediately cease deliveries and shut in the well or
wells as directed by Buyer. Should Seller fail to comply with Buyer's
instructions within a reasonable time in Buyer's sole judgment, Buyer may
take all action necessary to shut in such wells or otherwise interrupt the
receipt of gas at the Point(s) of Delivery or elsewhere, without additional
notice. If Buyer is unable to, or elects not to, shut in the wells or
otherwise interrupt receipt of the gas in the event Seller fails to do so
after receiving notice and instructions to do so pursuant to this
paragraph, any continuing deliveries to Buyer after such notice shall be
deemed to have been supplied by Seller to Buyer at no cost, and Buyer shall
not be obligated to make any payments to Seller therefor. Wells shut in
pursuant to this Article shall remain shut in, and deliveries of gas from
such wells shall not resume, until Buyer in its sole discretion notifies
Seller, by telephone or letter, that deliveries may be resumed. Buyer's
right to recall shut-in gas and to resume purchases shall be absolute. Upon
notice from Buyer, Seller shall resume deliveries as soon as practicable.
4. It is understood that Buyer has no obligation, implied or
expressed, to take gas on more than one hundred and eighty (180) days in
any year, nor on consecutive days, nor any obligation to take any specific
volume of gas, nor gas from any specific well or wells during the periods
in which Buyer is
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taking gas, except as expressly provided for pursuant to the Agreement. It
is the intent of the Parties, by this provision, to recognize that the
nature, timing, frequency and duration of Buyer's shut-in of wells or other
refusals to accept gas shall be at Buyer's sole discretion, subject only to
Buyer's express obligations to take gas in accordance with the terms of the
Agreement. Buyer shall not be liable for any damages, direct or indirect,
through loss of gas, or otherwise, sustained by Seller, its heirs,
executors, administrators or assigns, resulting from or arising out of the
failure or refusal of the Buyer to take gas, or out of any actions
incidental to its cessation of taking gas, or shutting in of wells, if such
failure, refusal or action is contemplated or permitted by the terms of the
Agreement.
5. Buyer's rights to suspend the taking of gas pursuant to this
Article IV shall be in addition to its rights to suspend taking gas
pursuant to any other provisions of the Agreement.
ARTICLE V
PRICE
-----
Subject to the terms and conditions of the Agreement, the price to be
paid by Buyer for all volumes of gas from wells subject to the Agreement
sold and delivered to the Point(s) of Delivery, shall be $2.50 MCF. In
addition, Buyer will pay $0.20/MCF to Seller as reimbursement for the cost
of delivering or transporting the gas to Buyer. The prices set forth in
this Article V represent: the full and complete price to be paid for gas
subject to the Agreement as delivered to the Point(s) of Delivery. Buyer is
not obligated to pay any additional or other
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price than the prices set forth here, regardless of what it may pay for any
other gas or transportation at any other time or date or pursuant to any
other agreement. The prices provided for in this Article shall be subject
to the provisions of Article IV, paragraph 1 and Article XI, paragraphs 2
and 4 of the Agreement.
ARTICLE VI
FORCE MAJEURE
-------------
1. The term "Force Majeure" as used herein, and as applied to either
party hereto, shall mean acts of the law, including governmental bodies
acting pursuant to law, acts of God, strikes, lockouts, or other labor
disturbances, acts of the public enemy, war, blockades, insurrections,
riots, epidemics, fires, lightning, storms, floods, washouts, arrests, and
restraint by government or people, civil disturbances, explosions, breakage
or accidents to machinery or lines of pipe, freezing of wells or pipe
lines, partial or entire failure of such wells, the necessity for making
repair to or alteration of machinery or line of pipe, or any other cause,
whether of the kind herein enumerated or otherwise, not reasonably within
the control of the party invoking Force Majeure. It is understood that
settlement of strikes, lockouts or labor disturbances shall be entirely
within the discretion of the party having the difficulty and that the above
requirement that any Force Majeure shall be remedied with all reasonable
dispatch shall not require the settlement of strikes, lockouts, or labor
disturbances by acceding to the demands of an opposing party when such
course is inadvisable in the discretion or judgment of the party having the
difficulty.
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2. Neither party to this Agreement shall be liable for any damage or
loss that may be occasioned by any failure, depletion, shortage, or
interruption in the production of gas from a well, or any decline in
natural pressure. In the event either party is rendered unable, wholly or
in part, by Force Majeure to carry out its obligations under this
Agreement, other than the obligation to make payment of amounts due
hereunder, then the obligations of such party, so far as they are affected
by such Force Majeure, shall be suspended during the continuance of any
inability so caused. However, the party claiming the existence of Force
Majeure shall use all reasonable efforts to remedy promptly any situation
which may interfere with the performance of its obligations under the
Agreement.
3. Neither Force Majeure or other causes or contingencies recognized
pursuant to the Agreement shall relieve either party of liability or
responsibility unless notice and full particulars are given in writing to
the other by the party relying on such facts, as soon as reasonably
practicable after the occurrence of the facts relied upon. Such facts shall
not, however, in any event, release either party from liability in the
event of its concurring negligence, nor from its obligations to make
payments of amounts then due.
ARTICLE VII
LIABILITY
---------
1. Buyer and Seller shall each have responsibility for, and shall
indemnify and hold the other, its agents, employees, officers, directors
and parent, harmless from and against, any
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claim, demand, action, liability, cost, expense (including reasonable
attorneys' fees), damages or loss, arising from or because of anything
which may be done or may happen or arise with respect to the gas while it
is within its own control as defined in Article X, paragraph 2 of the
Agreement.
2. Neither Buyer nor Seller shall be liable in damages to the other
for any interruption in, or for any act, omission, or circumstance
occasioned by or in consequence of, or related to, any such interruption,
if such interruption is contemplated by any provision of the Agreement.
ARTICLE VIII
NOTICES
-------
Notices to Buyer required under or relating to the Agreement shall be
addressed to it at P.O. Box 5759, Cleveland, Ohio 44101-0759, Attention:
Manager, Appalachian Gas Procurement (216/736-5365). All notices and
payments to Seller required under or relating to the Agreement shall be
made and mailed to:
Mr. Zachary T. Tatum
Tatum Petroleum Corporation
3910 Prospect Avenue, Suite F
Yorba Linda, CA 92686
Telephone: 714/524-5759
ARTICLE IX
PRODUCTION PERIOD
AND STATEMENT
-------------
1. Deliveries of gas to the Point(s) of Delivery shall be measured
during Production Periods. Production Periods shall be periods of between
twenty-eight and thirty-five days. Production Periods shall be identified
by the name of the month in which the period ends.
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2. Once each month Buyer shall render a statement setting forth the
total quantity of gas received at the Point(s) of Delivery during the prior
month's Production Period, and any payment due to Seller. Any such payments
may be reduced by any amounts due to Buyer from Seller pursuant to any
provision of the Agreement.
ARTICLE X
FURTHER OBLIGATIONS
AND REPRESENTATIONS
-------------------
1. Seller warrants that all of the gas sold and delivered to buyer
has been produced from wells in Ohio, that it has good, marketable title to
the gas sold as and when delivered to Buyer at the Point(s) of Delivery,
and that gas so delivered is free from all liens and encumbrances. Seller
covenants and agrees to indemnify Buyer, its officers and directors,
parents and affiliates, for, and save them harmless from, all suits,
actions, debts, accounts, damages, costs, losses and expenses arising from
or attributable to the adverse claims of any and all other persons or
parties to the gas delivered to Buyer hereunder; provided, however, that if
any person or party makes claim to any gas delivered to Buyer hereunder
adverse to Seller's claim of ownership thereof, or obtains a lien or
encumbrance against the same, Buyer may withhold payment for such gas
without liability for the payment of interest on the amounts withheld,
until such adverse claim or lien is released or disposed of by the parties
or by final court action and may pay such withheld amount or amounts to the
party or parties finally determined to be entitled thereto.
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2. Seller shall be deemed to be in control and possession of the gas
sold by it hereunder until it shall have been delivered to Buyer at the
Point(s) of Delivery, after which delivery Buyer shall be deemed to be in
control and possession thereof. Buyer shall have no responsibility with
respect to any gas sold to it hereunder until it is delivered at any such
delivery point, and no responsibility therefor because of anything which
may be. done, or may happen or arise with respect to said gas before
delivery to Buyer at such delivery point; and Seller shall have no
responsibility with respect to said gas after its delivery to Buyer and no
responsibility because of anything which may be done or may happen or arise
with respect to said gas after its delivery to Buyer at such delivery
point, except that nothing contained herein shall release Seller from its
obligations pursuant to Articles II and X of the Agreement.
3. Seller shall give thirty days notice in writing to Buyer of any
intended or anticipated expiration of any lease on which any well or wells
subject to the Agreement are located, either by surrender, release,
cancellation, expiration of term, cessation of production, abandonment, or
otherwise, and of Seller's intention to abandon any wells, casing, tubing,
pipelines or associated equipment or facilities (the "well property") on
the premises covered by any such lease.
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<PAGE>
4. No action shall be brought by Seller against Buyer on account of
any claimed failure under the Agreement unless sixty days written notice of
such claim of failure shall be served upon Buyer and unless Buyer shall
have failed to remedy such claim within such sixty day period. Such notice
of claim shall specify in detail the respects in which it is claimed the
Buyer has failed to perform. Any such notice of claim must be served by
Seller upon Buyer within twelve months of the time such claim is or could
have been discovered, it being the intention of the parties to bar Seller's
assertion of any claim more than twelve months after it arises, and by
doing so, to supersede any otherwise applicable statute of limitations on
claims by Seller.
5. Seller warrants that neither all nor any part of the output,
production or reserves of any of the wells listed on Exhibit A or any
supplement thereto has ever been previously produced, dedicated or sold to
or for Buyer or any other entity.
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<PAGE>
6. In the event any tax is now or hereafter imposed on natural gas,
or the production, severance, gathering, transporting, sale, delivery or
use thereof, or upon the business or privilege of producing, severing,
gathering, transporting, selling, delivering, or using natural gas, or if
such tax is imposed in any other manner so as to constitute directly or
indirectly a charge upon the gas delivered to Buyer hereunder, then the
amount of such tax shall be borne by Seller so far as it affects or relates
to or is apportionable to the activities of Seller with respect to the gas
delivered to Buyer under the Agreement. In the event Buyer is required to
pay such tax, the amount thereof may be deducted from the payments accruing
to Seller under the Agreement.
7. Seller shall pay or cause to be paid any royalty payments due or
owed on the gas delivered under the Agreement, and shall indemnify and hold
Buyer harmless from any responsibility, liability or obligation for payment
of any such royalty. In the event Buyer is obligated by law to make any
royalty payment directly to royalty owners which payment obligation would
otherwise be, or is, the responsibility of Seller, Seller shall reimburse
Buyer for any such payment or costs associated with such payment. If Seller
fails to reimburse Buyer, Buyer may deduct the amounts of such payments and
any costs associated with such payments from any amounts accruing to Seller
under the Agreement.
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<PAGE>
ARTICLE XI
MISCELLANEOUS
-------------
1. No waiver by either party of one or more failures or defaults of
the other party in the performance of any provisions of the Agreement shall
operate or be construed as a waiver of any future failures or defaults,
whether of a like or different character.
2. This Agreement and all of its provisions -- including the payment
of the prices stated in it -- are subject to all federal, state and local
laws and to the regulations or orders of any court or governmental agency
with jurisdiction over it, but the Agreement shall be governed by and
construed in accordance with the law of the State of Ohio, without giving
effect to the principles of conflicts of laws of the State.
3. This Agreement and its Exhibits constitute the entire agreement
between Buyer and Seller with respect to its subject matter, and no
modification of its terms and provisions shall be made or become effective
except by execution of a supplementary written agreement.
4. In the event any of the prices stated herein ever exceed the
applicable Maximum Lawful Price under the Natural Gas Policy Act of 1978 or
other legislation for the category of gas from any well subject to the
Agreement, Buyer will be required to pay only the Maximum Lawful Price for
the applicable category of gas.
5. Seller shall not assign the Agreement, in whole or in part,
without the written consent of Buyer which shall not be unreasonably
withheld. All the covenants and obligations of this agreement shall extend
to and be binding upon the successors and
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assigns of the respective parties. Any sale, assignment, farmout or other
disposition or agreement of or concerning the well or wells described
herein shall be subject to and expressly made subject to, the Agreement.
6. Should any provision of the Agreement be determined by any court
or regulatory body having jurisdiction to be void, voidable or otherwise
invalid, such determination shall have no effect on the remaining
provisions of the Agreement to the extent the provision eliminated can be
reasonably construed as severable from the remainder of the Agreement
without materially altering the rights, obligations, and purposes of Buyer
and Seller as reflected in the Agreement.
IN WITNESS WHEREOF the parties have set their signatures by their
officers duly authorized to do so the day and year first above written.
WITNESS: SELLER:
/s/ LORI M. POWELL By: /s/ ZACHARY T. TATUM
- ---------------------------- -------------------------------
/s/ SHANNON A. TATUM President
- ---------------------------- -------------------------------
WITNESS: BUYER:
/s/ BARRY YUGUAM By: /s/ BRUCE C. KLINH
- ---------------------------- -------------------------------
/s/ /s/ F.C. L
- ---------------------------- -------------------------------
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<PAGE>
Tatum Petroleum Corp. Contract No. 10811
INTERMEDIATE TERM
GAS PURCHASE AGREEMENT
TABLE OF CONTENTS
-----------------
Page
Article I Term 1
Article 11 Points of Delivery and Quality of Gas 2
Article 111 Measurement 6
Article IV Obligations to Take and Deliver Gas 8
Article V Price 11
Article VI Force Majeure 12
Article VII Liability 13
Article VIII Notices 14
Article IX Production Period and Statement 14
Article X Further Obligations and Representations 14
Article XI Miscellaneous 17
Exhibit
- -------
A - Dedicated Wells 19
GPA-INT
<PAGE>
10811
INTERMEDIATE TERM
GAS PURCHASE AGREEMENT
THIS AGREEMENT, (the "Agreement"), effective as of the 21st day of
March, 1995, is entered into by and between TATUM PETROLEUM CORP. the
"Seller," and EAST OHIO GAS, an Ohio corporation, the "Buyer."
RECITAL
-------
WHEREAS Seller desires to sell and deliver to Buyer, and Buyer desires
to purchase from Seller, at the Point(s) of Delivery specified in the
Agreement, all the natural gas produced during the term of the Agreement
from the Ohio well or wells described in Exhibit A attached and made a part
of the Agreement, at the prices and upon and subject to the terms,
conditions and limitations provided in the Agreement;
NOW THEREFORE, in consideration of their mutual covenants and promises
contained in the Agreement, Seller and Buyer agree as follows:
ARTICLE I
TERM
1. The Agreement shall continue in force for a term of two (2) years
commencing at the beginning of the May 1995 Production Period and
terminating at the end of the April 1997, Production Period, provided
however, (1) that if at any time the delivery by Seller at the Point(s) of
Delivery of gas from any well subject to the Agreement shall be less than
an average of twenty thousand cubic feet per day for any Production Period
in which the delivery or receipt of gas has not been interrupted pursuant
to Articles II, IV or VI of the Agreement, then Buyer, at its sole option,
may terminate the Agreement as to the gas produced from any such well, or
from
GPA-INT
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<PAGE>
each of such wells if there are more than one, by giving Seller thirty days
prior written notice of such termination, and, (2) that either Buyer or
Seller may terminate the Agreement by giving the other thirty days written
notice prior to the end of any Production Period, if the price to be paid
pursuant to Article V has been frozen pursuant to the provisions of Article
V, paragraph 2. No notice of termination or cancellation because of
expiration of the term stated in this paragraph shall be required.
2. During the term of the Agreement, Seller may make additional wells
subject to this Agreement only with Buyer's consent pursuant to the
execution by Buyer and Seller of supplements to Exhibit A identifying the
well or wells to be added. The execution of such supplements shall be at
Buyer's sole discretion and Buyer shall have no obligation to execute any
such supplements. During the term of the Agreement, any abandonment of a
well or wells listed on Exhibit A or any supplement thereto by Seller shall
only be with the written permission and at the sole discretion of Buyer.
Such permission shall not be unreasonably withheld.
3. The Agreement shall not extend to any well listed on Exhibit A
unless such well is turned on and gas from it is being received by Buyer at
the Point(s) of Delivery within ninety days of the date of the Agreement.
4. Termination for any cause shall not affect either party's rights or
duties arising; prior to such termination.
ARTICLE 11
POINT(S) OF DELIVERY AND QUALITY OF GAS
1. Seller shall promptly proceed with the construction of any
necessary pipe line extending from the well or wells subject to the
Agreement to the terminal point or points determined by Buyer, hereinafter
referred to as the "Point(s) of Delivery." the Point(s) of Delivery shall
be
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measuring stations furnished, constructed, owned, operated and maintained
by Buyer, located on Buyer's pipe lines as now constructed or on any
extension which may later be constructed. The sites for said measuring
stations shall be furnished by Buyer, or, if by Seller, with rights of
ingress and egress granted to Buyer. As soon as practicable after
completion of a pipe line by Seller to a Point of Delivery, Buyer, at
Seller's expense, shall construct the necessary gas measuring stations at
the Point of Delivery, if no suitable measuring station then exists at the
Point of Delivery. Prior to its construction if possible Buyer shall
provide Seller with its best estimate of the costs of the measuring
station, including station site. Seller shall pay Buyer an amount equal to
the estimate provided by Buyer to Seller. Such payment, which will bear no
interest, will be applied by Buyer toward the actual construction costs of
the measuring station. Following the accumulation of all actual costs by
Buyer for the measuring station, the parties shall reconcile any
differences within thirty days. In the event construction of a new
measuring station is not necessary at any Point of Delivery, Seller agrees
to pay Buyer a meter use fee for all gas sold hereunder measured at such
Point of Delivery. The fee shall be two cents per thousand cubic feet
("MCF") for all volumes actually delivered to Buyer by Seller through
existing measuring equipment at the Point of Delivery. If no new measuring
station is needed, the fee of two cents ($0.02) per MCF will be waived only
if Seller paid previously for the construction of the existing measuring
station. Buyer may at any time, at its option, install additional measuring
equipment so as to individually meter the gas from any well subject to the
Agreement. Seller may request that Buyer change any Point of Delivery after
its location has been originally established. If Buyer, in its sole
discretion, agrees to make such a change, all costs incurred by Buyer for
any alternate site, for the movement of any measuring and regulating
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station equipment, or for any new or additional metering facilities, will
be promptly reimbursed to Buyer by Seller after receipt of an itemized
invoice.
2. Seller's rights as Lessee under the terms of any lease pursuant to
which any well subject to the Agreement is drilled, for the purposes of
installing, operating, maintaining and removing any facilities and
equipment, including measuring equipment, and its rights of ingress and
egress to the well and measuring station, shall be extended to Buyer.
Seller shall provide and maintain in good repair access roads, suitable for
use by Buyer's vehicles, to all well sites and measuring stations. Should
Seller not secure, provide and maintain both physical and legal access to
any well or wells subject to the Agreement for Buyer, then Buyer shall, in
its sole discretion, have the right to terminate the Agreement as to such
well or wells.
3. Seller may use such mechanical pressurization as it deems
necessary to deliver gas to Buyer at the Point(s) of Delivery, but the gas
shall be taken by Buyer against such pipe line pressures as Buyer in its
sole judgment deems necessary to maintain in its pipe line system either by
reason of its market demands and deliveries of gas into its pipe line
system from other sources of supply or in accordance with good safety
practices and requirement and the regulations of government authorities.
Should Seller compress and pump the gas to be delivered to Buyer at the
Point(s) of Delivery, Seller shall also install and maintain at its own
expense the necessary equipment for the elimination or suppression of
pulsations in the flowing gas that are created by compression equipment,
and, in addition, Seller will install the necessary equipment to insure a
flowing temperature not to exceed 120 degrees Fahrenheit at the Point(s) of
Delivery.
4. Buyer may at any time suspend the taking of gas hereunder for
safety reasons or while making repairs or alterations to, or conducting
tests of, its pipelines or other facilities. When practicable Buyer shall
notify Seller in advance of its plans to suspend the taking of gas, giving
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its best estimate of the duration of the suspension. Such repairs,
alterations or tests shall be completed with due diligence. Any period of
suspension of Purchases pursuant to this paragraph shall be in addition to
all other rights of Buyer to suspend purchases pursuant to the Agreement.
5. Seller shall install and maintain at Seller's expense, the
necessary equipment for separating and removing oil, water, salt, dust,
sulfur or sulfur compounds, nitrogen or nitrogen compounds and other
gaseous impurities, objectionable odors, and foreign matter or substances
and mechanical pulsations from the gas before its delivery to Buyer at
Point(s) of Delivery. Seller is obligated to deliver, to Buyer at the
Point(s) of Delivery only such gas as is free from all substances or
flowing conditions which might affect or impair its marketability or cause
injury to or interference with the operation of the pipe lines, regulators,
meters or other equipment of Buyer or Buyer's customers. Buyer may refuse
at any time any gas which contains gaseous impurities or objectionable
odors or otherwise does not meet Buyer's gas quality standards. Other than
as provided for in this paragraph, however, the gas delivered to Buyer
hereunder shall be delivered in its natural state without any of its
component parts having been extracted.
6. Seller at all times shall deliver to Buyer at the Point(s) of
Delivery gas having a gross heating value of not less than 1,000 British
thermal units per cubic foot at 14.73 pounds per square inch absolute
("PSIA"), sixty degrees Fahrenheit and saturated with water vapor. Seller
shall deliver only such gas which does not contain more than 1/4 grain of
hydrogen sulfide per 100 cubic feet of gas volume (8 ppm of sulfur, by
weight) nor contain more than 3/4 grain of total sulfur per 100 cubic feet
of gas volume (22 ppm of sulfur, by weight).
7. If, by reason of the presence of any impurities in the gas
delivered to Buyer, or as a result of any other act or failure to act which
is inconsistent with the provisions of this Article II, any of Buyer's
property or equipment is damaged or otherwise rendered inoperative, Buyer
shall bill
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Seller, and Seller shall pay within fifteen days of receipt of an itemized
invoice, for the cost of all necessary repairs, corrections and
replacements.
8. All pipe lines, fittings, and other properties furnished under the
Agreement shall remain the property of the party furnishing the same who
shall be solely responsible for the maintenance and operation thereof, and
each party may remove its property at the termination of the Agreement,
provided however, that any property the cost of which has been reimbursed
to Buyer by Seller pursuant to paragraph 1 of this Article II shall remain
the property of, and shall be operated and maintained by, Buyer.
ARTICLE III
MEASUREMENT
1. The unit of measurement for gas hereunder shall be one cubic foot
of gas, and the term "cubic foot of gas" means a cubic foot of gas at a
pressure of 14.73 PSIA and at a temperature of sixty degrees (60)
Fahrenheit. For purposes of measurement and meter calibration, atmospheric
pressure shall be assumed to be 14.4 pounds per square inch. All gas
delivered to Buyer by Seller hereunder shall be measured by orifice or
other measurement facility of standard type to be selected and furnished by
Buyer. Orifice meters of Buyer shall be constructed and installed in
accordance with the applicable provisions of the American National Standard
"Orifice Metering of Natural Gas," ANSI/API 2530, First Edition, and any
amendments thereto. The volumes of gas delivered to Buyer at pipeline
pressures and temperatures shall be computed from meter records and
converted into the cubic foot or MCF unit of measurement specified here in
accordance with standard industry practice. Correction shall not be made
for deviation from the Ideal Gas Laws. The temperature of the gas flowing
through each meter is assumed to be sixty
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degrees (60) Fahrenheit, provided, however, that Buyer may at any time
install a recording thermometer to record the temperatures of the gas
flowing through the meter, in which event the arithmetic average of the
hourly temperatures recorded shall thereafter be used in correcting the
volumes delivered hereunder to the unit of measurement specified herein
above.
2. Buyer shall furnish, install and maintain in good condition all
meters and regulating equipment at the Point(s) of Delivery. Buyer shall
read the meters, which shall be accessible to inspection and examination by
Seller at all reasonable times. If Seller challenges the accuracy of any
meter or measuring equipment in use under this Agreement and desires to
have the same tested, Buyer shall, if Seller desires, perform the test in
the presence of Seller or Seller's representative. The cost of testing the
meter shall be borne by Seller if the meter proves to be correct, and it
shall be deemed correct if there shall be no greater variation than three
percent (3%), either plus or minus. If the meter on test proves incorrect,
then the cost of testing shall be borne by Buyer. If a meter does prove
incorrect, as provided herein, the registration of such meter shall be
corrected at the rate of such inaccuracy for a period agreed upon by the
Buyer and Seller. In no event will the inaccuracy adjustment period exceed
the lesser of one half the period of time from the last test, or the period
from the first of the preceding Production Period prior to the date of
challenge by either party. For the purpose of testing, the meter shall be
tested and adjusted on the ground. During the time a meter is disconnected
from the line, the gas delivered may be estimated by Buyer until the meter
is again connected to the line, such estimate to be on the basis of the
amount of gas registered at like pressures for like periods of time when
the meter was registering accurately.
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ARTICLE IV
OBLIGATIONS TO TAKE AND DELIVER GAS
1. Subject to the terms and conditions of the Agreement, Buyer shall
buy all the gas delivered to it by Seller at the Point(s) of Delivery, and
Seller shall, and is obligated to use its best efforts to, produce, deliver
and sell to Buyer all the gas owned, produced or purchased by Seller from
all wells listed on Exhibit A on each day of the term of the Agreement, in
an efficient and expeditious manner, other than that required for drilling
operations with respect to such wells. However, if required by the terms of
the oil and gas lease pursuant to which the gas subject to the Agreement is
produced, Seller may also provide up to 300 MCF per year to one dwelling on
the leased property from one well. Further, if required by the lease, each
additional dwelling on the leased property, if any, may also be provided
with up to 300 MCF per year if an additional well is producing gas on the
leased property for each such additional dwelling. In no event shall any
dwelling receive gas from more than one well, nor shall any well provide
gas for more than one dwelling, no matter how many dwellings or wells are
located on the leased property. If any other or greater volumes are
diverted from Buyer, then, at Buyer's option, the price per MCF set forth
in Article V will become, for all gas from each well from which excess
volumes were diverted, the Short Term Spot Price being paid by Buyer at the
time of the diversion, as such price may be amended by Buyer. The adjusted
price shall continue for a period of one year and as long thereafter as the
unauthorized diversion continues. Further, if the unauthorized diversion
continues beyond one year, Buyer at its option may take any or all of the
following actions: invoice Seller for the cost of the measuring station,
impose a fee of two cents ($0.02) per MCF to pay for the costs of measuring
the gas, if such fee is not already being charged, withhold such fees or
costs from payments for gas volumes associated with the well or wells, and
treat the
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diversion as a breach of the Agreement and pursue any or all legal and
equitable remedies, including termination and specific performance. Buyer
will immediately notify Seller in writing of any unauthorized diverted
volumes it becomes aware of, and its actions in response thereto.
2. It is understood and agreed, however, that Buyer's obligation to
take gas from any well or wells subject to the Agreement, in addition to
the limitations imposed elsewhere by the Agreement, is limited to two
hundred and seventy five (275) days in each or any calendar year beginning
January 1 and ending; December 31, except for the initial calendar year,
being the year in which gas from each well listed on Exhibit A is first
produced and delivered at the Point(s) of Delivery, during which period
Buyer agrees to take gas at least seventy-five percent of the time
remaining after the initial delivery date until the end of the initial
calendar year. Pursuant to this paragraph Buyer may suspend taking gas at
any time and for any reason, including price, but Buyer shall have the
right to require delivery or the resumption of delivery of gas on each day
of every year, subject to the terms of the Agreement.
3. If Buyer wishes Seller to cease delivering gas from any or all
wells subject to this Agreement pursuant to any provision of the Agreement,
Buyer shall notify Seller by telephone or letter, and Seller, on receipt of
such notice, shall immediately cease deliveries and shut in the well or
wells as directed by Buyer. Should Seller fail to comply with Buyer's
instructions within a reasonable time in Buyer's sole judgment, Buyer may
take all action necessary to shut in such wells or otherwise interrupt the
receipt of gas at the Point(s) of Delivery or elsewhere, without additional
notice. If Buyer is unable to, or elects not to, shut in the wells or
otherwise interrupt receipt of the gas in the event Seller fails to do so
after receiving notice and instructions to do so pursuant to this
paragraph, any continuing deliveries to Buyer after such notice shall be
deemed to have been supplied by Seller to Buyer at no cost, and Buyer shall
not be obligated to make
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any payments to Seller therefor. Wells shut in pursuant to this Article
shall remain shut in and deliveries of gas from such wells shall not resume
until Buyer in its sole discretion notifies Seller by telephone or letter
that deliveries may be resumed. Buyer's right to recall shut-in gas and to
resume purchases shall be absolute. Upon notice from Buyer Seller shall
resume deliveries as soon as practicable.
4. It is understood that Buyer has no obligation implied or expressed
to take gas on more than two hundred and seventy five (275) days in any
year nor on consecutive days nor any obligation to take any specific volume
of gas nor gas from any specific well or wells during the periods in which
Buyer is taking gas except as expressly provided for pursuant to the
Agreement. It is the intent of the Parties by this provision to recognize
that the nature, timing, frequency and duration of Buyer's shut-in of wells
or other refusals to accept gas shall be at Buyer's sole discretion subject
only to Buyer's express obligations to take gas in accordance with the
terms of the Agreement. Buyer shall not be liable for any damages direct or
indirect through loss of gas or otherwise sustained by Seller, its heirs,
executors, administrators or assigns resulting from or arising out of the
failure or refusal of the Buyer to take gas, or out of any actions
incidental to its cessation of taking gas or shutting in of wells if such
failure refusal or action is contemplated or permitted by the terms of the
Agreement.
5. Buyer's rights to suspend the taking of gas pursuant to this
Article IV shall be in addition to its rights to suspend taking gas
pursuant to any other provisions of the Agreement.
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ARTICLE V
PRICE
1. The price to be paid by Buyer to Seller shall be $2.25 per MCF for
each MCF received at the Point(s) of Delivery. The prices set forth in this
Article V represent the full and complete prices to be paid for gas subject
to the Agreement as delivered to the Point(s) of Delivery. Buyer is not
obligated to pay any additional or other prices than the prices set forth
here, regardless of what it may pay for any other gas at any other time or
date. The prices provided for in this Article shall be subject to the
provisions of Article IV, paragraph 1; Article X, paragraph 1; and Article
XI, paragraphs 2 and 4 of the Agreement.
2. In no event shall the price paid hereunder ever exceed Buyer's
current GCR. In any period when the provisions of this Article would
produce that result, the price shall be frozen at the level of the current
GCR, until any subsequent adjustment of either price or current GCR which
results in the price pursuant to the Agreement being below the level of the
current GCR, until any subsequent adjustment of either price or current GCR
which results in the price pursuant to the Agreement being below the level
of the then current GCR. In such event, no make-up payments shall be due or
paid with-respect to amounts previously unpaid due to the GCR limit on the
prices to be paid hereunder.
3. If the method of calculating the GCR reflected in Buyer's rate
schedules is materially changed in accordance with PUCO procedures, or if
the use of a GCR is eliminated, then the price in effect as of the day of
such change or elimination shall remain in effect for the duration of the
term of the Agreement.
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ARTICLE VI
FORCE MAJEURE
1. The term "Force Majeure" as used herein, and as applied to either
party hereto, shall mean acts of the law, including governmental bodies
acting pursuant to law, acts of God, strikes, lockouts, or other labor
disturbances, acts of the public enemy, war, blockades, insurrections,
riots, epidemics, fires, lightning, storms, floods, washouts, arrests, and
restraint by government or people, civil disturbances, explosions, breakage
or accidents to machinery or lines of pipe, freezing of wells or pipe
lines, partial or entire failure of such wells, the necessity for making
repair to or alteration of machinery or line of pipe, or any other cause,
whether of the kind herein enumerated or otherwise, not reasonably within
the control of the party invoking Force Majeure. It is understood that
settlement of strikes, lockouts or labor disturbances shall be entirely
within the discretion of the party having the difficulty and that the above
requirement that any Force Majeure shall be remedied with all reasonable
dispatch shall not require the settlement of strikes, lockouts, or labor
disturbances by acceding to the demands of an opposing party when such course
is inadvisable in the discretion or judgment of the party having the
difficulty.
2. Neither party to this Agreement shall be liable for any damage or
loss that may be occasioned by any failure, depletion, shortage, or
interruption in the production of gas from a well, or any decline in
natural pressure. In the event either party is rendered unable, wholly or
in part, by Force Majeure to carry out its obligations under this
Agreement, other than the obligation to make payment of amounts due
hereunder, then the obligations of such party, so far as they are affected
by such Force Majeure, shall be suspended during the continuance of any
inability so caused. However, the party claiming the existence of Force
Majeure shall use all
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reasonable efforts to remedy promptly any situation which may interfere
with the performance of its obligations under the Agreement.
3. Neither Force Majeure or other causes or contingencies recognized
pursuant to the Agreement shall relieve either party of liability or
responsibility unless notice and full particulars are given in writing to
the other by the party relying on such facts, as soon as reasonably
practicable after the occurrence of the facts relied upon. Such facts shall
not, however, in any event, release either party from liability in the
event of its concurring negligence, nor from its obligations to make
payments of amounts then due.
ARTICLE VII
LIABILITY
1. Buyer and Seller shall each have responsibility for, and shall
indemnify and hold the other, its agents, employees, officers, directors
and parent, harmless from and against, any claim, demand, action,
liability, cost, expense (including reasonable attorneys' fees), damages or
loss, arising from or because of anything which may be done or may happen
or arise with respect to the gas while it is within its own control as
defined in Article X, paragraph 2 of the Agreement.
2. Neither Buyer nor Seller shall be liable in damages to the other
for any interruption in, or for any act, omission, or circumstance
occasioned by or in consequence of, or related to, any such interruption,
if such interruption is contemplated by any provision of the Agreement.
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ARTICLE VIII
NOTICES
Notices to Buyer required under or relating to the Agreement shall be
addressed to it at P.O. Box 5759, Cleveland, Ohio 44101-0759, Attention:
Manager, Appalachian Gas Supply (216/736-5365). All notices and payments to
Seller required under or relating to the Agreement shall be made and mailed
to:
Mr. Zachary T. Tatum
Tatum Petroleum Corp.
667 E. Lakeview Plaza Blvd.
Worthington OH 43085
(614) 888-3637
ARTICLE IX
PRODUCTION PERIOD AND STATEMENT
1. Deliveries of gas to the Point(s) of Delivery shall be measured
during Production Periods. Production Periods shall be periods of between
twenty-eight and thirty-five days. Production Periods shall be identified
by the name of the month in which the period ends.
2. Once each month Buyer shall render a statement setting forth the
total quantity of gas received at the Point(s) of Delivery during the prior
month's Production Period, and any payment due to Seller. Any such payments
may be reduced by amounts due to Buyer from Seller pursuant to any
provision of the Agreement.
ARTICLE X
FURTHER OBLIGATION AND REPRESENTATIONS
1. Seller warrants that all of the gas sold and delivered to Buyer
has been produced from wells in Ohio, that it has good, marketable title to
the gas sold as and when delivered to Buyer at the Point(s) of Delivery,
and that gas so delivered is free from all liens and encumbrances. Seller
covenants and agrees to indemnify Buyer, its officers and directors,
parents and affiliates, for,
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and save them harmless from, all suits, actions, debts, accounts, damages,
costs, losses and expenses arising from or attributable to the adverse
claims of any and all other persons or parties to the gas delivered to
Buyer hereunder; provided, however, that if any person or party makes claim
to any gas delivered to Buyer hereunder adverse to Seller's claim of
ownership thereof, or obtains a lien or encumbrance against the same, Buyer
may withhold payment for such gas without liability for the payment of
interest on the amounts withheld, until such adverse claim or lien is
released or disposed of by the parties or by final court action and may pay
such withheld amount or amounts to the party or parties finally determined
to be entitled thereto.
2. Seller shall be deemed to be in control and possession of the gas
sold by it hereunder until it shall have been delivered to Buyer at the
Point(s) of Delivery, after which delivery Buyer shall be deemed to be in
control and possession thereof. Buyer shall have no responsibility with
respect to any gas sold to it hereunder until it is delivered at any such
delivery point, and no responsibility therefor because of anything which
may be done, or may happen or arise with respect to said gas before
delivery to Buyer at such delivery point; and Seller shall have no
responsibility with respect to said gas after its delivery to Buyer and no
responsibility because of anything which may be done or may happen or arise
with respect to said gas after its delivery to Buyer at such delivery
point, except that nothing contained herein shall release Seller from its
obligations pursuant to Articles II and X of the Agreement.
3. No action shall be brought by Seller against Buyer on account of
any claimed failure under the Agreement unless sixty days written notice of
such claim of failure shall be served upon Buyer and unless Buyer shall
have failed to remedy such claim within such sixty day period. Such notice
of claim shall specify in detail the respects in which it is claimed the
Buyer has failed to perform. Any such notice of claim must be served by
Seller upon Buyer within twelve
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months of the time such claim is or could have been discovered, it being
the intention of the parties to bar Seller's assertion of any claim more
than twelve months after it arises, and by doing so to supersede any
otherwise applicable statute of limitations on claims by Seller.
4. Seller warrants that if any of the output, production or reserves
of any of the wells listed on Exhibit A has ever been previously produced,
dedicated or sold to or for Buyer or any other entity, as to such output,
production, and wells, Seller has secured all necessary and appropriate
releases from all prior owners, producers, buyers or claimants.
5. In the event any tax is now or hereafter imposed on natural gas,
or the production, severance, gathering, transporting, sale, delivery or
use thereof, or upon the business or privilege of producing, severing,
gathering, transporting, selling, delivering, or using natural gas, or if
such tax is imposed in any other manner so as to constitute directly or
indirectly a charge upon the gas delivered to Buyer hereunder, then the
amount of such tax shall be borne by Seller so far as it affects or relates
to or is apportionable to the activities of Seller with respect to the gas
delivered to Buyer under the Agreement. In the event Buyer is required to
pay such tax, the amount thereof may be deducted from the payments accruing
to Seller under the Agreement.
6. Seller shall pay or cause to be paid any royalty payments due or
owed on the gas delivered under the Agreement, and shall indemnify and hold
Buyer harmless from any responsibility, liability or obligation for payment
of any such royalty. In the event Buyer is obligated by law to make any
royalty payment directly to royalty owners which payment obligation would
otherwise be, or is, the responsibility of Seller, Seller shall reimburse
Buyer for any such payment or costs associated with such payment. If Seller
fails to reimburse Buyer, Buyer may deduct the amounts of such payments and
any costs associated with such payments from any amounts accruing; to
Seller under the Agreement.
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ARTICLE XI
MISCELLANEOUS
1. No waiver by either party of one or more failures or defaults of
the other party in the performance of any provisions of the Agreement shall
operate or be construed as a waiver of any future failures or defaults,
whether of a like or different character.
2. This Agreement and all of its provisions - including the payment
of the prices stated in it - are subject to all federal, state and local
laws and to the regulations or orders of any court or governmental agency
with jurisdiction over it, but the Agreement shall be governed by and
construed in accordance with the law of the State of Ohio, without giving
effect to the principles of conflicts of laws of the State.
3. This Agreement and its Exhibits constitute the entire agreement
between Buyer and Seller with respect to its subject matter, and no
modification of its terms and provisions shall be made or become effective
except by execution of a supplementary written agreement.
4. In the event any of the prices stated herein ever exceed the
applicable Maximum Lawful Price under the Natural Gas Policy Act of 1978 or
other legislation for the category of gas from any well subject to the
Agreement, Buyer will be required to pay only the Maximum Lawful Price for
the applicable category of gas.
5. Seller shall not assign the Agreement, in whole or in part,
without the written consent of Buyer which shall not be unreasonably
withheld. All the covenants and obligations of this agreement shall extend
to and be binding upon the successors and assigns of the respective
parties. Any sale, assignment, farmout or other disposition or agreement
of or concerning the well or wells described herein shall be subject to and
expressly made subject to, the Agreement.
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6. Should any provision of the Agreement be determined by any court or
regulatory body having jurisdiction to be void, voidable or otherwise
invalid, such determination shall have no effect on the remaining:
provisions of the Agreement to the extent the provision eliminated can be,
reasonably construed as severable from the remainder of the Agreement
without materially altering the rights, obligations, and purposes of Buyer
and Seller as reflected in the Agreement.
IN WITNESS WHEREOF the parties have set their signatures by their
officers duly authorized to do so the day and year first above written.
WITNESS: SELLER:
TATUM PETROLEUM CORP.
/s/ By: /s/ ZACHARY T. TATUM
- ---------------------------- -------------------------------
/s/ LORI POWELL President
- ---------------------------- -------------------------------
Title
WITNESS: BUYER:
EAST OHIO GAS
/s/ BARRY YUGUAM By: /s/ BRUCE C. KLINH
- ---------------------------- -------------------------------
Vice President
/s/ /s/ F.C. L
- ---------------------------- -------------------------------
Secretary
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Tatum Petroleum Corp. Contract 11286
INTERMEDIATE TERM
GAS PURCHASE AGREEMENT
TABLE OF CONTENTS
-----------------
RECITAL 1
ARTICLE I TERM 1
ARTICLE II POINT(S) OF DELIVERY AND QUALITY OF GAS 3
ARTICLE III MEASUREMENT 6
ARTICLE IV OBLIGATIONS TO TAKE AND DELIVER GAS 8
ARTICLE V PRICE 11
ARTICLE VI FORCE MAJEURE 12
ARTICLE VII LIABILITY 14
ARTICLE VIII NOTICES 14
ARTICLE IX PRODUCTION PERIOD AND STATEMENT 15
ARTICLE X FURTHER OBLIGATIONS AND REPRESENTATIONS 15
ARTICLE XI MISCELLANEOUS 18
EXHIBIT A DEDICATED WELLS 20
<PAGE>
INTERMEDIATE TERM
GAS PURCHASE AGREEMENT
THIS AGREEMENT, (the "Agreement"), effective as of the 4th day of
June, 1996, is entered into by and between TATUM PETROLEUM CORPORATION, the
"Seller," and EAST OHIO GAS, an Ohio corporation, the "Buyer."
RECITAL
WHEREAS Seller desires to sell and deliver to Buyer, and Buyer desires
to purchase from Seller, at the Point(s) of Delivery specified in the
Agreement, all the natural gas produced during the term of the Agreement
from the Ohio well or wells described in Exhibit A attached and made a part
of the Agreement, at the prices and upon and subject to the terms,
conditions and limitations provided in the Agreement;
NOW THEREFORE, in consideration of their mutual covenants and promises
contained in the Agreement, Seller and Buyer agree as follows:
ARTICLE I
TERM
1. The Agreement shall continue in force for a term of one (1) year,
commencing at the beginning of the June 1996 production period and
terminating at the end of the May 1997 production period, provided however,
(1) that if at any time the delivery by Seller at the Point(s) of Delivery
of gas from any well subject to the Agreement shall be less than an average
of twenty thousand cubic feet per day for any Production Period in which
the delivery or receipt of gas has not been interrupted pursuant to
Articles II, IV or VI of the Agreement, then Buyer, at its sole
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option, may terminate the Agreement as to the gas produced from any such
well, or from each of such wells if there are more than one, by giving
Seller thirty (30) days prior written notice of such termination, and, (2)
that either Buyer or Seller may terminate the Agreement by giving the other
thirty (30) days written notice prior to the end of any Production Period,
if the price to be paid pursuant to Article V has been frozen pursuant to
the provisions of Article V, paragraph 2. No notice of termination or
cancellation because of expiration of the term stated in this paragraph
shall be required.
2. During the term of the Agreement, Seller may make additional wells
subject to this Agreement only with Buyer's consent pursuant to the
execution by Buyer and Seller of supplements to Exhibit A identifying the
well or wells to be added. The execution of such supplements shall be at
Buyer's sole discretion and Buyer shall have no obligation to execute any
such supplements. During the term of the Agreement, any abandonment of a
well or wells listed on Exhibit A or any supplement thereto by Seller shall
only be with the written permission and at the sole discretion of Buyer.
Such permission shall not be unreasonably withheld.
3. The Agreement shall not extend to any well listed on Exhibit A
unless such well is turned on and gas from it is being received by Buyer at
the Point(s) of Delivery within ninety (90) days of the date of the
Agreement.
4. Termination for any cause shall not affect either party's rights
or duties arising prior to such termination.
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ARTICLE II
POINT(S) OF DELIVERY AND QUALITY OF GAS
1. Seller shall promptly proceed with the construction of any
necessary pipe line extending from the well or wells subject to the
Agreement to the terminal point or points determined by Buyer, hereinafter
referred to as the "Point(s) of Delivery." The Point(s) of Delivery shall
be measuring stations furnished, constructed, owned, operated and
maintained by Buyer, located on Buyer's pipe lines as now constructed or on
any extension which may later be constructed. The sites for said measuring
stations shall be furnished by Buyer, or, if by Seller, with rights of
ingress and egress granted to Buyer. As soon as practicable after
completion of a pipe line by Seller to a Point of Delivery, Buyer, at
Seller's expense, shall construct the necessary gas measuring stations or
approve Seller's construction of the measuring station to Buyer's
specifications at the Point of Delivery, if no suitable measuring station
then exists at the Point of Delivery. Prior to its construction if possible
Buyer shall provide Seller with its best estimate of the costs of the
measuring station, including station site. Seller shall pay Buyer an
amount equal to the estimate provided by Buyer to Seller. Such payment,
which will bear no interest, will be applied by Buyer toward the actual
construction costs of the measuring station. Following the accumulation of
all actual costs by Buyer for the measuring station, the parties shall
reconcile any differences within thirty (30) days. In the event
construction of a new measuring station is not necessary at any Point of
Delivery, Seller agrees to pay Buyer a meter use fee for all gas sold
hereunder measured at such Point of Delivery. The fee shall be two cents
($0.02) per thousand cubic feet ("MCF") for all volumes actually delivered
to Buyer by Seller through existing measuring equipment at the Point of
Delivery. If no new measuring station is needed, the fee of two cents
($0.02) per MCF will be
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waived only if Seller paid previously for the construction of the existing
measuring station. Buyer may at any time, at its option, install additional
measuring equipment so as to individually meter the gas from any well
subject to the Agreement. Seller may request that Buyer change any Point of
Delivery after its location has been originally established. If Buyer, in
its sole discretion, agrees to make such a change, all costs incurred by
Buyer for any alternate site, for the movement of any measuring and
regulating station equipment, or for any new or additional metering
facilities, will be promptly reimbursed to Buyer by Seller after receipt of
an itemized invoice.
2. Seller's rights as Lessee under the terms of any lease pursuant to
which any well subject to the Agreement is drilled, for the purposes of
installing, operating, maintaining and removing any facilities and
equipment, including measuring equipment, and its rights of ingress and
egress to the well and measuring station, shall be extended to Buyer.
Seller shall provide and maintain in good repair access roads, suitable for
use by Buyer's vehicles, to all well sites and measuring stations. Should
Seller not secure, provide and maintain both physical and legal access to
any well or wells subject to the Agreement for Buyer, then Buyer shall, in
its sole discretion, have the right to terminate the Agreement as to such
well or wells.
3. Seller may use such mechanical pressurization as it deems
necessary to deliver gas to Buyer at the Point(s) of Delivery, but the gas
shall be taken by Buyer against such pipe line pressures as Buyer in its
sole judgment deems necessary to maintain in its pipe line system either by
reason of its market demands and deliveries of gas into its pipe line
system from other sources of supply or in accordance with good safety
practices and requirements and the regulations of government authorities.
Should Seller compress and pump the gas to be delivered to Buyer at the
Point(s) of
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Delivery, Seller shall also install and maintain at its own expense the
necessary equipment for the elimination or suppression of pulsations in the
flowing gas that are created by compression equipment, and, in addition,
Seller will install the necessary equipment to insure a flowing temperature
not to exceed 120 degrees Fahrenheit at the Point(s) of Delivery.
4. Buyer may at any time suspend the taking of gas hereunder for
safety reasons or while making repairs or alterations to, or conducting
tests of, its pipelines or other facilities. When practicable Buyer shall
notify Seller in advance of its plans to suspend the taking of gas, giving
its best estimate of the duration of the suspension. Such repairs,
alterations or tests shall be completed with due diligence. Any period of
suspension of Purchases pursuant to this paragraph shall be in addition to
all other rights of Buyer to suspend purchases pursuant to the Agreement.
5. Seller shall install and maintain at Seller's expense, the
necessary equipment for separating and removing oil, water, salt, dust,
sulfur or sulfur compounds, nitrogen or nitrogen compounds and other
gaseous impurities, objectionable odors, and foreign matter or substances
and mechanical pulsations from the gas before its delivery to Buyer at
Point(s) of Delivery. Seller is obligated to deliver, to Buyer at the
Point(s) of Delivery only such gas as is free from all substances or
flowing conditions which might affect or impair its marketability or cause
injury to or interference with the operation of the pipe lines, regulators,
meters or other equipment of Buyer or Buyer's customers. Buyer may refuse
at any time any gas which contains gaseous impurities or objectionable
odors or otherwise does not meet Buyer's gas quality standards. Other than
as provided for in this paragraph, however, the gas delivered to Buyer
hereunder shall be delivered in its natural state without any of its
component parts having been extracted.
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6. Seller at all times shall deliver to Buyer at the Point(s) of
Delivery gas having a gross heating value of not less than 1,000 British
thermal units per cubic foot at 14.73 pounds per square inch absolute
("PSIA"), sixty degrees (60) Fahrenheit and saturated with water vapor.
Seller shall deliver only such gas which does not contain more than 1/4
grain of hydrogen sulfide per 100 cubic feet of gas volume (8 ppm of
sulfur, by weight) nor contain more than 3/4 grain of total sulfur per 100
cubic feet of gas volume (22 ppm of sulfur, by weight).
7. If, by reason of the presence of any impurities in the gas
delivered to Buyer, or as a result of any other act or failure to act which
is inconsistent with the provisions of this Article II, any of Buyer's
property or equipment is damaged or otherwise rendered inoperative, Buyer
shall bill Seller, and Seller shall pay within fifteen (15) days of receipt
of an itemized invoice, for the cost of all necessary repairs, corrections
and replacements.
8. All pipe lines, fittings, and other properties furnished under the
Agreement shall remain the property of the party furnishing the same who
shall be solely responsible for the maintenance and operation thereof, and
each party may remove its property at the termination of the Agreement,
provided however, that any property the cost of which has been reimbursed
to Buyer by Seller pursuant to paragraph 1 of this Article II shall remain
the property of, and shall be operated and maintained by, Buyer.
ARTICLE III
MEASUREMENT
1. The unit of measurement for gas hereunder shall be one cubic foot
of gas, and the term "cubic foot of gas" means a cubic foot of gas at a
pressure of 14.73 PSIA and at a temperature of
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sixty degrees (60) Fahrenheit. For purposes of measurement and meter
calibration, atmospheric pressure shall be assumed to be 14.4 pounds per
square inch. All gas delivered to Buyer by Seller hereunder shall be
measured by orifice or other measurement facility of standard type to be
selected and furnished by Buyer. Orifice meters of Buyer shall be
constructed and installed in accordance with the applicable provisions of
the American National Standard "Orifice Metering of Natural Gas," ANSI/API
2530, First Edition, and any amendments thereto. The volumes of gas
delivered to Buyer at pipeline pressures and temperatures shall be computed
from meter records and converted into the cubic foot or MCF unit of
measurement specified here in accordance with standard industry practice.
Correction shall not be made for deviation from the Ideal Gas Laws. The
temperature of the gas flowing through each meter is assumed to be sixty
degrees (60) Fahrenheit, provided, however, that Buyer may at any time
install a recording thermometer to record the temperatures of the gas
flowing through the meter, in which event the arithmetic average of the
hourly temperatures recorded shall thereafter be used in correcting the
volumes delivered hereunder to the unit of measurement specified herein
above.
2. Buyer shall furnish, install and maintain in good condition all
meters and regulating equipment at the Point(s) of Delivery. Buyer shall
read the meters, which shall be accessible to inspection and examination by
Seller at all reasonable times. If Seller challenges the accuracy of any
meter or measuring equipment in use under this Agreement and desires to
have the same tested, Buyer shall, if Seller desires, perform the test in
the presence of Seller or Seller's representative. The cost of testing the
meter shall be borne by Seller if the meter proves to be correct, and it
shall be deemed correct if there shall be no greater variation than three
percent
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(3%), either plus or minus. If the meter on test proves incorrect, then the
cost of testing shall be borne by Buyer. If a meter does prove incorrect,
as provided herein, the registration of such meter shall be corrected at
the rate of such inaccuracy for a period agreed upon by the Buyer and
Seller. In no event will the inaccuracy adjustment period exceed the lesser
of one half the period of time from the last test, or the period from the
first of the preceding Production Period prior to the date of challenge by
either party. For the purpose of testing, the meter shall be tested and
adjusted on the ground. During the time a meter is disconnected from the
line, the gas delivered may be estimated by Buyer until the meter is again
connected to the line, such estimate to be on the basis of the amount of
gas registered at like pressures for like periods of time when the meter
was registering accurately.
ARTICLE IV
OBLIGATIONS TO TAKE AND DELIVER GAS
1. Subject to the terms and conditions of the Agreement, Buyer shall
buy all the gas delivered to it by Seller at the Point(s) of Delivery, and
Seller shall, and is obligated to use its best efforts to, produce, deliver
and sell to Buyer all the gas owned, produced or purchased by Seller from
all wells listed on Exhibit A on each day of the term of the Agreement, in
an efficient and expeditious manner, other than that required for drilling
operations with respect to such wells. However, if required by the terms of
the oil and gas lease pursuant to which the gas subject to the Agreement is
produced, Seller may also provide up to 300 MCF per year to one dwelling on
the leased property from one well. Further, if required by the lease, each
additional dwelling on the leased property, if any, may also be provided
with up to 300 MCF per year if an additional well is
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producing gas on the leased property for each such additional dwelling. In
no event shall any dwelling receive gas from more than one well, nor shall
any well provide gas for more than one dwelling, no matter how many
dwellings or wells are located on the leased property. If any other or
greater volumes are diverted from Buyer, then, at Buyer's option, the price
per MCF set forth in Article V will become, for all gas from each well from
which excess volumes were diverted, the Short Term Spot Price being paid by
Buyer at the time of the diversion, as such price may be amended by Buyer.
The adjusted price shall continue for a period of one year and as long
thereafter as the unauthorized diversion continues. Further, if the
unauthorized diversion continues beyond one year, Buyer at its option may
take any or all of the following actions: invoice Seller for the cost of
the measuring station, impose a fee of two cents ($0.02) per MCF to pay for
the costs of measuring the gas, if such fee is not already being charged,
withhold such fees or costs from payments for gas volumes associated with
the well or wells, and treat the diversion as a breach of the Agreement and
pursue any or all legal and equitable remedies, including termination and
specific performance. Buyer will immediately notify Seller in writing of
any unauthorized diverted volumes it becomes aware of, and its actions in
response thereto.
2. It is understood and agreed, however, that Buyer's obligation to
take gas from any well or wells subject to the Agreement, in addition to
the limitations imposed elsewhere by the Agreement, is limited to two
hundred and seventy five (275) days in each or any calendar year beginning
January 1 and ending December 31, except for the initial calendar year,
being the year in which gas from each well listed on Exhibit A is first
produced and delivered at the Point(s) of Delivery, during which period
Buyer agrees to take gas at least seventy-five percent of the time
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remaining after the initial delivery date until the end of the initial
calendar year. Pursuant to this paragraph Buyer may suspend taking gas at
any time and for any reason, including price, but Buyer shall have the
right to require delivery or the resumption of delivery of gas on each day
of every year, subject to the terms of the Agreement.
3. If Buyer wishes Seller to cease delivering gas from any or all
wells subject to this Agreement pursuant to any provision of the Agreement,
Buyer shall notify Seller by telephone, facsimile, or letter, and Seller,
on receipt of such notice, shall immediately cease deliveries and shut in
the well or wells as directed by Buyer. Should Seller fail to comply with
Buyer's instructions within a reasonable time in Buyer's sole judgment,
Buyer may take all action necessary to shut in such wells or otherwise
interrupt the receipt of gas at the Point(s) of Delivery or elsewhere,
without additional notice. If Buyer is unable to, or elects not to, shut in
the wells or otherwise interrupt receipt of the gas in the event Seller
fails to do so after receiving notice and instructions to do so pursuant to
this paragraph, any continuing deliveries to Buyer after such notice shall
be deemed to have been supplied by Seller to Buyer at no cost, and Buyer
shall not be obligated to make any payments to Seller therefor. Wells shut
in pursuant to this Article shall remain shut in, and deliveries of gas
from such wells shall not resume, until Buyer in its sole discretion
notifies Seller, by telephone, facsimile, or letter, that deliveries may be
resumed. Buyer's right to recall shut-in gas and to resume purchases shall
be absolute. Upon notice from Buyer, Seller shall resume deliveries as soon
as practicable.
4. It is understood that Buyer has no obligation, implied or
expressed, to take gas on more than two hundred and seventy five (275) days
in any year, nor on consecutive days, nor any
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obligation to take any specific volume of gas, nor gas from any specific
well or wells during the periods in which Buyer is taking gas, except as
expressly provided for pursuant to the Agreement. It is the intent of the
Parties, by this provision, to recognize that the nature, timing, frequency
and duration of Buyer's shut-in of wells or other refusals to accept gas
shall be at Buyer's sole discretion, subject only to Buyer's express
obligations to take gas in accordance with the terms of the Agreement.
Buyer shall not be liable for any damages, direct or indirect, through loss
of gas, or otherwise, sustained by Seller, its heirs, executors,
administrators or assigns, resulting from or arising out of the failure or
refusal of the Buyer to take gas, or out of any actions incidental to its
cessation of taking gas, or shutting in of wells, if such failure, refusal
or action is contemplated or permitted by the terms of the Agreement.
5. Buyer's rights to suspend the taking of gas pursuant to this
Article IV shall be in addition to its rights to suspend taking gas
pursuant to any other provisions of the Agreement.
ARTICLE
PRICE
1. The price to be paid by Buyer to Seller shall be NYMEX plus $0.45
per MCF for each MCF received at the Point(s) of Delivery. The NYMEX for
each month will be the settlement price of the NYMEX natural gas futures
contract (at the Henry Hub) for the last day during which the contract is
traded for such month. The NYMEX contract for the calendar month will be
used to price the corresponding production month (i.e., the November NYMEX
contract will be used to price November production; the December NYMEX
contract will be used to price December production). The prices set forth
in this Article V represent the full and complete prices to be
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paid for gas subject to the Agreement as delivered to the Point(s) of
Delivery. Buyer is not obligated to pay any additional or other prices than
the prices set forth here, regardless of what it may pay for any other gas
at any other time or date. The prices provided for in this Article shall be
subject to the provisions of Article IV, paragraph 1; Article X, paragraph
1; and Article XI, paragraphs 2 and 4 of the Agreement.
2. In no event shall the price paid hereunder ever exceed Buyer's
current GCR. In any period when the provisions of this Article would
produce that result, the price shall be frozen at the level of the current
GCR, until any subsequent adjustment of either price or current GCR which
results in the price pursuant to the Agreement being below the level of the
current GCR. In such event, no make-up payments shall be due or paid with
respect to amounts previously unpaid due to the GCR limit on the prices to
be paid hereunder.
3. If the method of calculating the GCR reflected in Buyer's rate
schedules is materially changed in accordance with PUCO procedures, or if
the use of a GCR is eliminated, then the price in effect as of the day of
such change or elimination shall remain in effect for the duration of the
term of the Agreement.
ARTICLE VI
FORCE MAJEURE
1. The term "Force Majeure" as used herein, and as applied to either
party hereto, shall mean acts of the law, including governmental bodies
acting pursuant to law, acts of God, strikes, lockouts, or other labor
disturbances, acts of the public enemy, war, blockades, insurrections,
riots, epidemics, fires, lightning, storms, floods, washouts, arrests, and
restraint by government or people, civil disturbances, explosions, breakage
or accidents to machinery or lines of pipe,
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freezing of wells or pipe lines, partial or entire failure of such wells,
the necessity for making repair to or alteration of machinery or line of
pipe, or any other cause, whether of the kind herein enumerated or
otherwise, not reasonably within the control of the party invoking Force
Majeure. It is understood that settlement of strikes, lockouts or labor
disturbances shall be entirely within the discretion of the party having
the difficulty and that the above requirement that any Force Majeure shall
be remedied with all reasonable dispatch shall not require the settlement
of strikes, lockouts, or labor disturbances by acceding to the demands of
an opposing party when such course is inadvisable in the discretion or
judgment of the party having the difficulty.
2. Neither party to this Agreement shall be liable for any damage or
loss that may be occasioned by any failure, depletion, shortage, or
interruption in the production of gas from a well, or any decline in
natural pressure. In the event either patty is rendered unable, wholly or
in part, by Force Majeure to carry out its obligations under this
Agreement, other than the obligation to make payment of amounts due
hereunder, then the obligations of such party, so far as they are affected
by such Force Majeure, shall be suspended during the continuance of any
inability so caused. However, the party claiming the existence of Force
Majeure shall use all reasonable efforts to remedy promptly any situation
which may interfere with the performance of its obligations under the
Agreement.
3. Neither Force Majeure or other causes or contingencies recognized
pursuant to the Agreement shall relieve either party of liability or
responsibility unless notice and full particulars are given in writing to
the other by the party relying on such facts, as soon as reasonably
practicable after the occurrence of the facts relied upon. Such facts shall
not, however, in any
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event, release either party from liability in the event of its concurring
negligence, nor from its obligations to make payments of amounts then due.
ARTICLE VII
LIABILITY
1. Buyer and Seller shall each have responsibility for, and shall
indemnify and hold the other, its agents, employees, officers, directors
and parent, harmless from and against, any claim, demand, action,
liability, cost, expense (including reasonable attorneys' fees), damages or
loss, arising from or because of anything which may be done or may happen
or arise with respect to the gas while it is within its own control as
defined in Article X, paragraph 2 of the Agreement.
2. Neither Buyer nor Seller shall be liable in damages to the other
for any interruption in, or for any act, omission, or circumstance
occasioned by or in consequence of, or related to, any such interruption,
if such interruption is contemplated by any provision of the Agreement.
ARTICLE VIII
NOTICES
Notices to Buyer required under or relating to the Agreement shall be
addressed to it at P.O. Box 5759, Cleveland, Ohio 44101-0759, Attention:
Manager, Appalachian Gas Supply (216/736-5365). All notices and payments to
Seller required under or relating to the Agreement shall be made and mailed
to:
Mr. Zachary T. Tatum
Tatum Petroleum Corp.
667 E. Lakeview Plaza Blvd.
Worthington, OH 43085
Phone: (614) 888-3637
Fax: (614) 888-3621
GPA-INT Contract No. 11286
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ARTICLE IX
PRODUCTION PERIOD AND STATEMENT
1. Deliveries of gas to the Point(s) of Delivery shall be measured
during Production Periods. Production Periods shall be periods of between
twenty-eight (28) and thirty-five (35) days. Production Periods shall be
identified by the name of the month in which the period ends.
2. Once each month Buyer shall render a statement setting forth the
total quantity of gas received at the Point(s) of Delivery during the prior
month's Production Period, and any payment due to Seller. Any such payments
may be, reduced by amounts due to Buyer from Seller pursuant to any
provision of the Agreement.
ARTICLE X
FURTHER OBLIGATIONS AND REPRESENTATIONS
1. Seller warrants that all of the gas sold and delivered to Buyer
has been produced from wells in Ohio, that it has good, marketable title to
the gas sold as and when delivered to Buyer at the Point(s) of Delivery,
and that gas so delivered is free from all liens and encumbrances. Seller
covenants and agrees to indemnify Buyer, its officers and directors,
parents and affiliates, for, and save them harmless from, all suits,
actions, debts, accounts, damages, costs, losses and expenses arising from
or attributable to the adverse claims of any and all other persons or
parties to the gas delivered to Buyer hereunder, provided, however, that if
any person or party makes claim to any gas delivered to Buyer hereunder
adverse to Seller's claim of ownership thereof, or obtains a lien or
encumbrance against the same, Buyer may withhold payment for such gas
without liability for the payment of interest on the amounts withheld,
until such adverse claim or lien is released or
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disposed of by the parties or by final court action and may pay such
withheld amount or amounts to the party or parties finally determined to be
entitled thereto.
2. Seller shall be deemed to be in control and possession of the gas
sold by it hereunder until it shall have been delivered to Buyer at the
Point(s) of Delivery, after which delivery Buyer shall be deemed to be in
control and possession thereof. Buyer shall have no responsibility with
respect to any gas sold to it hereunder until it is delivered at any such
delivery point, and no responsibility therefore because of anything which
may be done, or may happen or arise with respect to said gas before
delivery to Buyer at such delivery point; and Seller shall have no
responsibility with respect to said gas after its delivery to Buyer and no
responsibility because of anything which may be done or may happen or arise
with respect to said gas after its delivery to Buyer at such delivery
point, except that nothing contained herein shall release Seller from its
obligations pursuant to Articles II and X of the Agreement.
3. No action shall be brought by Seller against Buyer on account of
any claimed failure under the Agreement unless sixty (60) days written
notice of such claim of failure shall be served upon Buyer and unless Buyer
shall have failed to remedy such claim within such sixty day period. Such
notice of claim shall specify in detail the respects in which it is claimed
the Buyer has failed to perform. Any such notice of claim must be served by
Seller upon Buyer within twelve months of the time such claim is or could
have been discovered, it being the intention of the parties to bar Seller's
assertion of any claim more than twelve months after it arises, and by
doing so to supersede any otherwise applicable statute of limitations on
claims by Seller.
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4. Seller warrants that if any of the output, production or reserves
of any of the wells listed on Exhibit A has ever been previously produced,
dedicated or sold to or for Buyer or any other entity, as to such output,
production, and wells, Seller has secured all necessary and appropriate
releases from all prior owners, producers, buyers or claimants.
5. In the event any tax is now or hereafter imposed on natural gas,
or the production, severance, gathering, transporting, sale, delivery or
use thereof, or upon the business or privilege of producing, severing,
gathering, transporting, selling, delivering, or using natural gas, or if
such tax is imposed in any other manner so as to constitute directly or
indirectly a charge upon the gas delivered to Buyer hereunder, then the
amount of such tax shall be borne by Seller so far as it affects or relates
to or is apportionable to the activities of Seller with respect to the gas
delivered to Buyer under the Agreement. In the event Buyer is required to
pay such tax, the amount thereof may be deducted from the payments accruing
to Seller under the Agreement.
6. Seller shall pay or cause to be paid any royalty payments due or
owed on the gas delivered under the Agreement, and shall indemnify and hold
Buyer harmless from any responsibility, liability or obligation for payment
of any such royalty. In the event Buyer is obligated by law to make any
royalty payment directly to royalty owners which payment obligation would
otherwise be, or is, the responsibility of Seller, Seller shall reimburse
Buyer for any such payment or costs associated with such payment. If Seller
fails to reimburse Buyer, Buyer may deduct the amounts of such payments and
any costs associated with such payments from any amounts accruing to Seller
under the Agreement.
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ARTICLE XI
MISCELLANEOUS
1. No waiver by either party of one or more failures or defaults of
the other party in the performance of any provisions of the Agreement shall
operate or be construed as a waiver of any future failures or defaults,
whether of a like or different character.
2. This Agreement and all of its provisions -- including the payment
of the prices stated in it -- are subject to all federal, state and local
laws and to the regulations or orders of any court or governmental agency
with jurisdiction over it, but the Agreement shall be governed by and
construed in accordance with the law of the State of Ohio, without giving
effect to the principles of conflicts of laws of the State.
3. This Agreement and its Exhibits constitute the entire agreement
between Buyer and Seller with respect to its subject matter, and no
modification of its terms and provisions shall be made or become effective
except by execution of a supplementary written agreement.
4. In the event any of the prices stated herein ever exceed the
applicable Maximum Lawful Price under the Natural Gas Policy Act of 1978 or
other legislation for the category of gas from any well subject to the
Agreement, Buyer will be required to pay only the Maximum Lawful Price for
the applicable category of gas.
5. Seller shall not assign the Agreement, in whole or in part,
without the written consent of Buyer which shall not be unreasonably
withheld. All the covenants and obligations of this agreement shall extend
to and be binding upon the successors and assigns of the respective
parties. Any sale, assignment, farmout or other disposition or agreement of
or concerning the well or wells described herein shall be subject to and
expressly made subject to, the Agreement.
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6. Should any provision of the Agreement be determined by any court
or regulatory body having jurisdiction to be void, voidable or otherwise
invalid, such determination shall have no effect on the remaining
provisions of the Agreement to the extent the provision eliminated can be,
reasonably construed as severable from the remainder of the Agreement
without materially altering the rights, obligations, and purposes of Buyer
and Seller as reflected in the Agreement.
IN WITNESS WHEREOF the parties have set their signatures by their
officers duly authorized to do so the day and year first above written.
WITNESS: SELLER:
TATUM PETROLEUM CORPORATION
/s/ By: /s/ ZACHARY T. TATUM
- --------------------------- -------------------------------
/s/ LORI POWELL PRESIDENT
- --------------------------- -------------------------------
TITLE
WITNESS: BUYER:
EAST OHIO GAS
/s/ EILEEN M. OCONNOR By: /s/ BRUCE C. KLINH
- --------------------------- -------------------------------
Senior Vice President
/s/ /s/
- --------------------------- -------------------------------
Secretary
GPA-INT Contract No. 11286
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EXHIBIT 24.1
Robert L. Williams, Consulting Geologist
P.O. Box 27, Granville, Ohio 43023
Phone: 614 587-1409
11 January 1997
Zachary T. Tatum, President
Tatum Petroleum Corporation
667-E Lakeview Plaza Blvd.
Worthington, Ohio 43085
Re: Annual Reserve Reports
Dear Mr. Tatum:
The undersigned prepared reserve reports for Tatum Petroleum Corporation
for fiscal years ending 31 March 1995 and 31 March 1996.
This is to confirm that you have my permission to use data contained in
these reports during preparation of SEC Form 10SB.
Yours truly,
/s/ ROBERT L. WILLIAMS
------------------------------
Robert L. Williams
EXHIBIT 24.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in the Registration Statement on Form 10-SB
of Tatum Petroleum Corporation of our reports dated June 18, 1996
accompanying the financial statements of Tatum Petroleum Corporation
contained in such Registration Statement.
/s/ Hein + Associates LLP
- -----------------------------
HEIN + ASSOCIATES LLP
Denver, Colorado
January 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Tatum Petroleum Corporation
March 31, 1996 and September 30, 1996
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1996
<PERIOD-END> MAR-31-1996 SEP-30-1996
<CASH> 416,000 241,000
<SECURITIES> 0 0
<RECEIVABLES> 684,000 418,000
<ALLOWANCES> 0 0
<INVENTORY> 19,000 185,000
<CURRENT-ASSETS> 1,119,000 844,000
<PP&E> 6,742,000 7,282,000
<DEPRECIATION> (3,464,000) 3,662,000
<TOTAL-ASSETS> 4,417,000 4,481,000
<CURRENT-LIABILITIES> 1,530,000 1,322,000
<BONDS> 0 0
0 0
0 0
<COMMON> 104,000 104,000
<OTHER-SE> 2,503,000 2,671,000
<TOTAL-LIABILITY-AND-EQUITY> 4,417,000 4,481,000
<SALES> 3,083,000 1,425,000
<TOTAL-REVENUES> 3,292,000 1,510,000
<CGS> 536,000 253,000
<TOTAL-COSTS> 2,579,000 1,203,000
<OTHER-EXPENSES> 63,000 (35,000)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 19,000 13,000
<INCOME-PRETAX> 776,000 272,000
<INCOME-TAX> (300,000) (104,000)
<INCOME-CONTINUING> 476,000 168,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 476,000 168,000
<EPS-PRIMARY> .05 .02
<EPS-DILUTED> .05 .02
</TABLE>
